COMMODITY MARKET

Presented by:
Akhilesh Gadkar PG-13-14
Pritesh shah PG-13-50
Arpit Shah PG-13-59

What are commodities?

In economics, a commodity is the generic term

for any marketable item produced to satisfy
wants or needs. Economic commodities
comprise goods and services.

Commodity Exchange
A commodity exchange is defined as an
association, or alternatively a company, as well
as any corporate body that organizes trading in
commodities. Earlier the commodity exchange
was more like an open market place where
traders would call their bids and purchase
commodities.
A commodities exchange is an exchange where
various commodities and derivatives products
are traded. Most commodity markets across the
world trade in agricultural products and other
raw materials.

Commodities exchanges usually trade futures

contracts on commodities, such as trading
contracts to receive something, say corn, in a
certain month. A farmer raising corn can sell a
future contract on his corn, which will not be
harvested for several months, and guarantee
the price he will be paid when he delivers; a
breakfast cereal producer buys the contract
now and guarantees the price will not go up
when it is delivered. This protects the farmer
from price drops and the buyer from price
rises.

Commodity Market
Commodity markets are markets where raw or
primary products are exchanged. These raw
commodities
are
traded
on
regulated
commodities exchanges, in which they are
bought and sold in standardized contracts.

Commodity Exchange and Stock

Exchange

The basic difference between the commodity

exchange and stock exchange is that while in
commodity exchange non-financial
commodities i.e. agro products such as castor,
groundnut, sesame etc. and non agro products
such as aluminum, zinc, nickel etc. are traded.
However in a stock exchange all financial
products are traded such as stocks, indexes,
interest rate, government securities etc. are
traded.

Commodity Futures

Futures are standardized agreements between

a buyer and a seller to exchange a pre-agreed
quantity of an asset of pre-specified quality:

at a specific price, and at a pre-specified future date

If the underlying asset is a commodity, the

futures are called commodity futures.

Regulation

Forward Controls (Regulation) Act, 1952

Act applicable to all trades where delivery was after

more than 11 days.

Forward Markets commission regulatory body .

Snapshot of Indian Commodity

Market
Two Major Commodities Exchange in
India
MCX (Multi Commodity Exchange)
NCDEX (National Commodities &
Derivatives Exchange

Structure of Indian Commodity

Futures Exchanges

As of 2011, Indias TOP

commodity exchanges are:

National Multi-Commodity Exchange (NMCE).

Multi Commodity Exchange (MCX).
Indian Commodity Exchange ICEX.
ACE Derivatives and Commodity Exchange ACE

MCX (Multi Commodity Exchange)

Multi Commodity Exchange of India Ltd (MCX) is a state-ofthe-art electronic commodity futures exchange. The
demutualised Exchange has permanent recognition from the
Government of India to facilitate online trading, and clearing
and settlement operations for commodity futures across the
country.
MCX offers more than 40 commodities across various
segments such as bullion, ferrous and non-ferrous metals,
energy, and a number of agri-commodities on its platform.
The Exchange introduces standardized commodity futures
contracts on its platform.
MCX has been certified to three ISO standards including
ISO 9001:2008 Quality Management System standard, ISO
14001:2004 Environmental Management System standard

National Commodity and

Derivatives Exchange

National Commodity & Derivatives Exchange Limited

(NCDEX) is a professionally managed on-line multi
commodity exchange. The shareholders of NCDEX
comprises of large national level institutions, large public
sector bank and companies.
NCDEX is a public limited company incorporated on April
23, 2003 under the Companies Act, 1956. It obtained its
Certificate for Commencement of Business on May 9, 2003.
It commenced its operations on December 15, 2003.
NCDEX is regulated by Forward Markets Commission.
NCDEX is subjected to various laws of the land like the
Forward Contracts (Regulation) Act, Companies Act, Stamp
Act, Contract Act and various other legislations.

NCDEX headquarters are located in Mumbai and offers facilities

to its members from the centers located throughout India.

The Exchange, as on February 9, 2012 offered contracts in 34

commodities - comprising 23 agricultural commodities, 6
precious metals, 2 energy, 1 polymer and 2 other metals. The
top 5 commodities, in terms of volume traded at the Exchange,
were Soya oil, Gaur Seed, Chana, RM seed and Guar gum.

NCDEX the country's second largest commodity derivatives

exchange, has been listing contracts since 2003.

The NCDEX ranked number 32nd in 2010 in the Futures

Industry Association's global list of top 53 derivatives exchanges
measured by volume, rising 34.16% on 2009 volume

The exchange posted volume of 40.1 million contracts in 2010,

up from 29.9 million in 2009, according to FIA data published in

Size of the Market

The trading of commodities includes physical trading of

food items, Energy and Metals, etc. and trading of
derivatives.
In the five years up to 2007, the value of global physical
exports of commodities increased by 17%while the
notional value outstanding of commodity OTC derivatives
increased more than 500% and commodity derivative
trading on exchanges more than 200%.
Agricultural contracts trading grew by 32% in
2007,energy 29% and industrial metals by 30%.
Precious metals trading grew by 3%, with higher volume
in New York being partially offset by declining volume in
Tokyo.
OTC trading accounts for the majority of trading in gold

INDIAN COMMODITY MARKETS

Commodity Markets have their presence in country

for over 120 yrs.
Trade in commodities has been Unorganized in
Regional markets & Local Mandis.
Trading in Futures Contracts has been permitted in
over 120 commodities.
Physical commodity market size in India is
estimated to be around 25 lakh core per annum.
Major commodities traded in India are - Gold, Silver,
Crude Oil, Copper, Guar, Chana, Spices, among the
few.

Benefits of commodity Future

Markets.

Price Discovery:-Based on inputs regarding specific

market information, the demand and supply equilibrium,
weather forecasts, expert views and comments, inflation
rates, Government policies, market dynamics, hopes
and fears, buyers and sellers conduct trading at futures
exchanges. This transforms in to continuous price
discovery mechanism.
Price Risk Management: - Hedging is the most
common method of price risk management. It is strategy
of offering price risk that is inherent in spot market by
taking an equal but opposite position in the futures
market. Futures markets are used as a mode by hedgers
to protect their business from adverse price change.
This could dent the profitability of their business.
Hedging benefits who are involved in trading of
commodities like farmers, processors, merchandisers,

Import- Export competitiveness: - The exporters can

hedge their price risk and improve their competitiveness by
making use of futures market. A majority of traders which are
involved in physical trade internationally intend to buy
forwards. The purchases made from the physical market
might expose them to the risk of price risk resulting to losses.
Benefits for farmers/Agriculturalists: - Price instability has
a direct bearing on farmers in the absence of futures market.
There would be no need to have large reserves to cover
against unfavorable price fluctuations. This would reduce the
risk premiums associated with the marketing or processing
margins enabling more returns on produce. Storing more and
being more active in the markets. The price information
accessible to the farmers determines the extent to which
traders/processors increase price to them. Since one of the
objectives of futures exchange is to make available these
prices as far as possible, it is very likely to benefit the

GROWTH IN THE COMMODITY MARKET AS

COMPARED TO THE EQUITY MARKET

The Indian commodity futures volumes have grown 5.5 times

from Rs.20.53 trillion in 2005-06 to Rs.112.52 trillion in 2010-11
Currently, the average monthly volume on the Indian commodity
exchanges is Rs.6 trillion. MCX leads the industry, followed by
NCDEX.
MCX is not only number one in India but has achieved some
global milestones too. It was the largest exchange in silver (in
terms of number of futures contracts traded in 2010), number
two in gold, copper and natural gas and number three in crude
oil. When we say India is the largest exchange in silver, it is a
great achievement for the Multi Commodity Exchange.

Talking about agricultural commodities, the Indian

commodities market has futures contracts of commodities
such as black pepper, cumin seed, mentha oil and many
more which are internationally traded but only listed in India;
internationally traders tend to consider these as benchmark
rates.
Foreign institutional investors, domestic institutions, banks
and insurance companies are not allowed to trade on the
Indian commodity bourses and a majority of volumes come
from jobbers, arbitrageurs, retail traders and small scale
enterprises and corporate (for hedging). Even portfolio
management services are not permitted.
We expect the Indian commodity futures market to reach at
least 15x-20x by FY15. With the contribution of Indian
physical commodities to GDP being pegged at 45%, even if
the commodity futures market trades at 15x-20x, we can
imagine the kind of volumes our exchanges will generate.

List of Traded Commodity

Agricultural (Grains, and Food and Fiber)
Livestock & Meat
Energy
Precious metals
Industrial metals

Agricultural Products:

Corn, Oats, Rough Rice, Soybeans, Rapeseed,

Soybean Meal, Soybean Oil, Wheat, Cocoa,
Coffee, Cotton No.2, Sugar No.11,Sugar No.14.
Livestock and Meat:- Lean Hogs, Frozen Pork
Bellies, Live Cattle, Feeder Cattle.
Energy:- WTI Crude Oil, Brent Crude, Ethanol,
Natural Gas, Heating Oil, Gulf Coast Gasoline,
RBOB Gasoline, Propane, Uranium.
Precious Metal:- Gold, Platinum, Palladium,
Silver.
Industrial Metals:- Copper, Lead, Zinc, Tin,
Aluminum, Aluminum alloy, Nickel, Aluminum

Commodity Exchanges

Abuja Securities and Commodities Exchange

Bhatinda Om & Oil Exchange Bathinda
Brazilian Mercantile and Futures Exchange
Chicago Board of Trade
Chicago Mercantile Exchange
Commodity Exchange Bratislava, JSC
Dalian Commodity Exchange
Dubai Mercantile Exchange
Euro next life
Intercontinental Exchange

Minneapolis Grain Exchange

Multi Commodity Exchange

National Commodity and Derivatives Exchange

National Multi-Commodity Exchange of India Ltd

National Food Exchange

New York Mercantile Exchange

New York Board of Trade

Rosario Board of Trade

Steelbay

Kansas City Board of Trad

London Metal Exchange

Winnipeg Commodity Exchange

National Spot Exchange

Recent trends in Commodity

Market.

The 2008 global boom in commodity prices - for

everything from coal to corn was fueled by
heated demand from the likes of China and India.
Speculation in forward markets.
Farmers are expected to face a sharp drop in crop
prices as a result of bad rainfall.
Other commodities, such as steel, are also
expected to fall due to lower demand

Future Contract

Commodity and Futures contracts are similar as

"Forward" Contracts.
Early days "future" contracts (agreements to buy
now, pay and deliver later) were used as a way of
getting products from producer to the consumer.
These typically were only for food and agricultural
Products. Now it is used for every metal.
Future contract for commodity trading and for
share trading is all different from one another

CONCLUSION

India is one of the top producers of a large number of

commodities, and also has a long history of trading in
commodities and related derivatives. The commodities
derivatives market has seen ups and downs, but seem
to have finally arrived now.
The market has made enormous progress in terms of
technology, transparency and the trading activity.
Interestingly, this has happened only after the
Government protection was removed from a number of
commodities, and market forces were allowed to play
their role.
This should act as a major lesson for the policy makers
in developing countries, that pricing and price risk
management should be left to the market forces rather
than trying to achieve these through administered price

THANK YOU
!!!