Presentation on Commodity

Market
• Group Members: Roll No.:
• Baldha Nitin M. 02
• Bhatt Krutarth Y. 03
• Chaudhari Viren A. 06
• Kaklotar Ghanshyam G. 15
• Kaklotar Mahesh D. 16
 Introduction of Commodity
Market
• What is “Commodity”?
– Any product that can be used for commerce or an article of
commerce which is traded on an authorized commodity
exchange is known as commodity.

• What is “Commodity Exchange”?

– Commodities exchange, any exchange where various
commodities and derivatives products are traded.

• What is “Commodity Future”?

– An Agreement between the two parties , after specific period of
time.
 Objectives of Commodity
Futures
• Hedging
• To Maintain Buffer stock
• Price Stabilization
• Flexibility and transparency in purchase
 Advantages of Commodity
Trading
• Leverage
• Commission Costs
• Liquidity
• Ability to go short
• No Time Decay
India and The Commodity Market
• The history of organized commodity derivatives in India
goes back to the nineteenth century when Cotton Trade
Association started futures trading in 1875
• Cotton, derivatives trading started in oilseed in Bombay
(1900), raw jute and jute goods in Calcutta (1912),
Wheat in Hapur (1913) and Bullion in Bombay (1920).
• The parliament passed the Forward Contracts
(Regulation) Act, 1952, which regulated contracts in
Commodities all over the India.
• After Liberalization and Globalization in 1990, the
Government set up a committee (1993) to examine the
role of futures trading.
COMMODITY EXCHANGES IN
INDIA
• National Commodities & Derivatives Exchange
Limited (NCDEX)
– NCDEX is a public limited company incorporated on 23 April
2003. NCDEX is a national level technology driven on line
Commodity Exchange with an independent Board of Directors
and professionals not having any vested interest in Commodity
Markets.
• Multi Commodity Exchange of India Limited (MCX)
– MCX started of trade in Nov 2003 and has built strategic alliance
with Bombay Bullion Association, Bombay Metal Exchange,
Solvent Extractors Association of India, pulses Importers
Association
• National Multi Commodity Exchange of India Limited (NMCEIL)
– National Multi Commodity Exchange of India Limited (NMCEIL) is the first de-
mutualised Electronic Multi Commodity Exchange in India. On 25th July 2001 it was
granted approval by Government to organize trading in edible oil complex.
 INTERNATIONAL COMMODITY
EXCHANGES
• The New York Mercantile Exchange (NYMEX)
– The exchange is in existence since last 132 years and performs
trades trough two divisions, the NYMEX division, which deals in
energy and platinum and the COMEX division, which trades in
all the other metals.

• London Metal Exchange

– The exchange was formed in 1877 as a direct consequence of
the industrial revolution witnessed in the 19th century.
– The exchange trades 24 hours a day through an inter office
telephone market and also through a electronic trading platform.
• The Chicago Board of Trade
– The first commodity exchange established in the world was the Chicago
Board of Trade (CBOT) during 1848 by group of Chicago merchants who
were keen to establish a central market place for trade.
– More than 50 contracts on futures and options are being offered by CBOT
currently through open outcry and/or electronically.

• Tokyo Commodity Exchange (TOCOM)

– The Tokyo Commodity Exchange (TOCOM) is the second largest commodity futures exchange in the
world.
– TOCOM launched options on gold futures, the first option contract in Japanese market, in May 2004

• Chicago Mercantile Exchange

– The Chicago Mercantile Exchange (CME) is the largest futures exchange in the US
and the largest futures clearing house in the world for futures and options trading.
 How Commodity market works?
• There are two kinds of trades in commodities. The first is the spot
trade, in which one pays cash and carries away the goods. The
second is futures trade.
• For commodity futures to work, the seller should be able to deposit
the commodity at warehouse nearest to him and collect the
warehouse receipt. The buyer should be able to take physical
delivery at a location of his choice on presenting the warehouse
receipt. But at present in India very few warehouses provide delivery
for specific commodities.
Following diagram gives a fair idea about working of the Commodity

market.
 Current Scenario in Indian Commodity Market
• The turnover of commodities traded in India’s exchanges during 2009 went up to
a record level of Rs 70,90,442 crore, up by 40.85% as against Rs 50,33,872
crore in2008, despite a some restrictions in trading.

• The turnover of leading agri-commodity bourse NCDEX surged by over 28% to Rs 8,05,707 crore in 2009
following the re-launch of suspended commodities like chana, soya oil, potato and rubber during 2008-end

• Agriculture contributes about 22% GDP of Indian economy with a

growth of 8-10 % in 2009
 • Multi Commodity Exchange (MCX)
– There are about 100 commodities traded on MCX, in 2009
only 3 or 4 commodities contribute for more than 80 percent
of total trade volume. As per recent data the largely traded
commodities are Gold, Silver, Energy and base Metals.
– According to FMC, MCX gained highest turnover among the 24
commodity exchanges with an amount of Rs 59, 56,644 crore in
2009.
– MCX launched ‘Exchange of Futures for Physicals’ (EFP) India's
first transaction facility to integrate the futures markets with the
physical markets.

• National Commodity & Derivatives Exchange (NCDEX)

– NCDEX is the second largest commodity exchange in the country after
MCX.
– NCDEX has launched kachhi ghani mustard oil future contract for
February, march and April 2010.
 Quantitative Analysis
• 1.Investor’s preferences: - Other
7%

23% Share Market

43%

Bank F.D.

27% Commodity
Market

Investment Prefrences specified in other category

3%
30%
Real Estate
Jwelary
Not Specified
67%
• Source:- SEBI bulletin
• 2.People’s knowledge about Commodity Market: -

13%

Know

Don’t Know

87%
• 3.Investor’s interested to invest in Commodity Market: -

Interested

50% 50% Not Interested

 4.Commodity Market Investors
Preferences

13%
37% Bullion
20%
Metals
Agricultural
Fossils/Energy
30%
• 5. Perception about Commodity Market

25%

Less Risky
Risky
50%
Very Risky

25%
 • 6. Opinion about Commodity Market Advertisement

Not Informative

• As majority of Indian investors100

are not aware of organized commodity
market; their perception about is of risky to very risky investment.

• Many of them have wrong impression about commodity market in

their minds.
• Along with Government efforts NGO’s should come forward to
educate the people about commodity markets and to encourage them
to invest in to it.
• India is one of the top producers of large number of commodities and
also has a long history of trading in commodities and related
derivatives.

• The market has made enormous progress just because of

Government protection was removed from a number of
Commodities

• There is no doubt that in near future commodity market will become

Hot spot for Indian farmers rather than spot market.

• But for this to happen one has to take initiative to standardize and
popularize the Commodity Market.