With plans to launch futures trading in coffee and PVC (polyvinyl chloride), the National Commodities and Derivatives Exchange (NCDEX), the country's largest agriculture commodity exchange, is making a major comeback.
This is part of its plan to introduce new contracts in non-price-sensitive commodities. According to Arun Raste, Managing Director of NCDEX, the bourse is also planning to introduce a liquidity enhancement scheme (LES) in steel, which is considered market-making.
The Securities and Exchange Board of India (SEBI) has given the exchange its permission to launch the LES in steel.
Last year, the Sebi imposed a one-year suspension on futures trading in seven commodities: non-basmati rice, wheat, green gramme, soyabean and its derivatives, rapeseed-mustard complex, crude palm oil, and chana. NCDEX dominated soyabean, rapeseed/mustard complex, and chana trading among these commodities.
The sudden ban on futures trading in select agriculture commodities was "of course unfortunate," but Raste told Business Line that it was "not the end of the road," because Sebi has approved 90 commodities for futures trading as long as value chain participants benefit.
"We conducted a thorough investigation and were surprised to discover that coffee has a 30% market share in hot brewed beverages. "There are a lot of leading brands competing for prime position in the coffee market," he said.
The exchange plans to start trading coffee futures in the first quarter of this fiscal year while also working on an LES for steel, according to Raste, a former member of the National Dairy Development Board with extensive experience in agriculture and related fields.
This isn't the first time that coffee futures have been introduced. Coffee was one of the first commodities to see futures trading, with the Coffee Futures Exchange of India being established in 1997.
However, due to low grower participation, the trading did not take off as planned, and it had to be shut down after a few years. Coffee futures were introduced by the National Multi Commodity Exchange (NMCE) in 2005, and NCDEX's competitor Multi Commodity Exchange followed suit in 2007. Both futures, however, had to be cancelled due to insufficient interest.
India exports two-thirds of its coffee production and is Asia's third-largest producer and exporter. It is the world's sixth-largest producer and fifth-largest exporter of coffee.
It is primarily grown in Karnataka, Kerala, and Tamil Nadu, with a few exceptions in Andhra Pradesh and the North-East. Indian coffee is exported to countries such as the United States, Italy, Germany, Belgium, Jordan, and Russia, among others.
PVC is another area where the exchange is collaborating closely with the industry and expects to have plans ready soon. According to Raste, there are many large brands involved in the PVC (Polyvinyl chloride) value chain, with numerous export opportunities.
Following the ban on seven commodities last year, Raste stated that the exchange prefers to focus on non-price sensitive commodities because it has been proven beyond doubt that futures trading does not contribute to price increases. It only transmits signals about future price trends.
The exchange is still in contact with farmers in soyabean and RM seed growing villages, and once trading restrictions on these commodities are lifted, the exchange will list them for trading. "It is well established that once an exchange gains investors' and traders' interest in a particular commodity, they do not move to another exchange," NCDEX CEO said.
