comodity eco system
Post on 07-Apr-2018
224 Views
Preview:
TRANSCRIPT
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 1/13
UDAYBHANSINHJI
REGIONAL INSTITUTE OF CO-OPERATIVE MANAGEMENT
AGRI BUSINESS MANAGEMENT
Assignment on
COMMODITY ECO-SYSTEM
Submitted To: SUBBIMTTED By:
Mr.JONSHEN Anamika (1002)
(MANAGER OF KARVI FINANCE) Manoj (1009)
Rinkal (1010)
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 2/13
Commodity Markets Ecosystem
After studying the importance of commodity markets and trading in commodity futures,
it is essential to understand the different components of the commodity markets
ecosystem. The commodity markets ecosystem includes the following components:
1. Buyers/Sellers or Consumers/Producers: Farmers, manufacturers, wholesalers,
distributors, farmers’ co-operatives, APMC mandis, traders, state civil supplies
corporations, importers, exporters, merchandisers, oil refining companies, oil producing
companies, etc.
2. Logistics Companies: Storage and transport companies/operators, quality testing and
certifying companies, valuers, etc.
3. Markets and Exchanges: Spot markets (mandis, bazaars, etc.) and commodity
exchanges (national level and regional level)
4. Support agencies: Depositories/de-materializing agencies, central and state warehousing
corporations, and private sector warehousing companies
5. Lending Agencies: Banks, financial institutions
The users are the producers and consumers of different commodities. They have exposure to
the physical commodities markets, exposing themselves to price risk. In turn, they depend on
logistics companies for transportation of commodities, warehouses for storage, and quality
testing and certification agencies for assessment and evaluation of commodity quality standards.
Commodity derivatives exchanges provide a platform for hedging against price risk for these
users.
Benefits of Trading in Commodity Derivatives
Trading in futures provides two important functions of price discovery and price risk
management. It is useful to all the segments of the economy, particularly to all the constituents of
the commodity market ecosystem. It is important to know how resorting to commodity trading
benefits the constituents.
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 3/13
Benefits to Investors, Producers, Consumers, Manufacturers:
Price risk management: All participants in the commodity markets ecosystem across the
value chain of different commodities are exposed to price risk. These participants buy
and sell commodities and the time lag between subsequent transactions result in exposure
to price risk. Commodity derivatives markets enable these participants to avoid price risk
by utilizing hedging techniques.
Price discovery: This is the mechanism by which a “fair value price” is determined by
the large number of participants in the commodities derivatives markets. This is the
result of automation and electronic trading systems established on the commodities
derivatives exchanges.
High financial leverage: This is possible in commodity markets. For example, trading in
gold calls for only 4% initial margin. Thus, if one gold futures contract (each gold futures
contract lot size is 1 kg) is valued at Rs 900,000, the investor is expected to deposit an
initial margin of only Rs 36,000 to be able to trade. If the price of gold goes up by even
2%, the investor would make a profit of Rs 18,000 on a deposit of Rs 36,000 before the
expiry of the contract. This is the benefit of leveraged trading transactions. With futures
contracts, the investor trades in the expectation of the price at a later date. This is possible
with a margin deposit, which is usually between 5% and 10% of the value of the
commodity. Correspondingly, the margins required for equity futures contracts are
higher, due to higher volatility in equity markets as compared to commodities futures
contracts. The reason for higher volatility in equity markets (especially in India) as
compared to commodities derivatives transactions is due to the fact that delivery is
possible in commodity derivatives transactions.
Commodities as an asset class for diversification of portfolio risk: Commodities have
historically an inverse correlation of daily returns as compared to equities. The skewness
of daily returns favours commodities, thereby indicating that in a given time periodcommodities have a greater probability of providing positive returns as compared to
equities. Another aspect to be noted is that the Sharpe ratio of a portfolio consisting of
different asset classes is higher in the case of a portfolio consisting of commodities as
well as equities. Even with a marginal distribution of funds in a portfolio to include
commodities, the Sharpe ratio is greatly enhanced, thereby indicating a decrease in risk.
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 4/13
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 5/13
Commodity Ecosystem
Commodity Market Structure
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 6/13
Commodity Markets – Overview
Indian commodity market – set for paradigm shift
• Four licenses recently issued by Govt. of India to set-up National Online Multi
Commodity Exchanges – to ensure a transparent price discovery and risk management
mechanism
• List of commodities for futures trade – increased from 11 in 1990 to over 100 in 2003
• Reforms with regard to sale, storage and movement of commodities initiated
• Shift from administered pricing to free market pricing – WTO regime
• Overseas hedging has been allowed in metals
• Petro-products marketing companies have been allowed to hedge prices
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 7/13
Institutionalization of agriculture
About MCX
National Level Online Multi Commodity Futures Exchange
Key Promoters –
Financial Technologies (India) Ltd, State Bank of
India, Union Bank
Corporation Bank, Bank of India,
Canara Bank,
State Bank of Indore Bank of
Baroda
Operations from 300 cities with over 775 members & 3000 TWS
First Indian Exchange to enter into an agreement with an International Exchange
(TOCOM)
Facilitating Cost effective and economic technology.
Real-time price & information dissemination through website and info vendors
MCX Business Associates
• Statutory Auditor - M/s. Deloitte,
Haskins & Sells
• Internal Auditor- M/s V.Shankar
Aiyer & Company
• Network services - HCL Comnet
Ltd.(VSAT)S
VSNL
(Internet)
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 8/13
Tata Tele
(Leased line)
Reliance
gateway ( Wireless )
• Clearing Banks - BOI, HDFC,
IndusInd, UBI & UTI
• Quality Certification SGS,
Geochem , Dr. Amin Lab., Agencies
Rubber Board
• Warehouses – CWC, Gujarat,
Kerala, Tamilnadu and UP
• Bullion Logistics – Group 4 and
Brinks Arya
Salient Futures of MCX
• On-line monitoring at members and contract level - exposure, price, open interest,
quantity, client, etc.
• On-line margin adjustment - Business in relation to deposit
• System driven control and actions
• Electronic fund transfer
• Daily clearing – marked to market
– Pay-in and pay-out: T+1 working day
– Exchange approved depositories
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 9/13
– Seller to submit proof of delivery with proper quality certification to MCX
Participants in Commodity Futures
Farmers/ Producers
Merchandisers/ Traders
Importers
Exporters
Consumers/ Industry
Commodity Financers
Agriculture Credit providing agencies
Corporate having price risk exposure in commodities
Benefits of Futures Trading
• Price discovery for commodity players
– A farmer can plan his crop by looking at prices prevailing in the futures market
• Hedging against price risk
– A farmers can sell in futures to ensure remunerative prices
– A processor/ manufacturing firm can buy in futures to hedge against volatile raw
material costs
– An exporter can commit to a price to his foreign clients
– A stockist can hedge his carrying risk to ensure smooth prices of the seasonal
commodities round the year
• Easy availability of finance
Based on hedged positions commodity market players (farmers, processors, manufacturers,
exporters) may get easy financing from the banks
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 10/13
How Commodity Futures Help
Risk Management
Growers – Short hedge on upcoming produce
Traders – Short Hedge on stored quantity
Manufacturers – Long Hedge on input cost, Short hedge on finished products
Any price risk that is not managed is a cost; any cost is a direct dent on profitability
Price Discovery
Futures prices can be used as indicative prices for negotiating the export prices and also
upcountry sales
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 11/13
Nation-wide Multi Exchanges vis a vis Regional Exchanges
• Better Reach in all parts of the country
• Wider base for speculators from other markets including securities market
• Broad basing of the underlying commodity
• Industry diffused in several parts of the country may also
directly participate
• Few commodities can be projected viable for an international futures
Contract, with participation from global player
• Novation of all open positions in the market by the exchange
• Best management practices, end of day mark to market, online margining and
surveillance, daily pay-in & pay-out are some of the features to woo the players
Key Differentiators of MCX
• Team
– Best Industry Professionals – Technology, Exchange Management and Advisory
Board with 8 Decades of Exchange Management Expertise
– Best Support Agencies – Warehouses, Quality, Banks & Others
– Best Intermediaries across the country & in multiple commodities
• Technology
– State of the art Information Technology
– Real time price and trade information dissemination
– Robust risk management system and controls
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 12/13
• Techniques (Practices)
– Best International practices of Exchange governance
– Competitive membership fee structure and operational cost.
To provide information - international & spot markets and commodity research
What’s in it f or Industry
• Free Markets price commodities best & consistently
• Globalisation & standardisation - global price convergence
• Futures Market - Most efficient Market Place
• Price discovery on futures Exchange with consistent Agriculture policy will give right
direction to market for pricing commodities
• MSP does not serve much purpose in free market regime
• Problems of different sectors in Agriculture need a different policy with a common
direction
Future of Commodity Market
• India - Largest Consumer - Producer - Exporter - Importer
• Large size intermediaries penetrate commodities market
• Banks to Finance commodities – Futures a secured route
• RBI permits Banks to hedge their bullion risk through Futures Exchange – Other
commodities to follow
• Using Exchange Network for various products & Services
• BPO & Trade Interest will attract International players
• Hub for value added services & food processing
8/3/2019 Comodity Eco System
http://slidepdf.com/reader/full/comodity-eco-system 13/13
• New class of commodity Traders & Value Investors
top related