Transcript Slide 1
Commodity: An Asset Class Presented By :Mahesh Airan, AEO, ICSI Commodity Market A commodity refers to any good, merchandise or produce of a land that can be bought and sold. A commodity is an article or product that; • is used for commerce, • is moveable, • has value, • can be bought and sold, • is produced or used as a subject in a barter or sale. Commodities – in Real Life Wheat in bread Petrol in vehicle Coffee on table Sugar in sweets Chana in chhole Gold in necklace ……… and so on ……. Commodities are everywhere Assets Classes Equities :Performes during economic expansion & an out performer over very long term… Fixed Income: Performs at the later stage of recession… Real Estate : Performs during early expansion… Commodities: Performance spread evenly over the economic cycle… 1. Seasonality A major force in the commodities markets 2. Correlation Unlike other asset class, commodities are positively and negatively correlated within & outside the group which is unique to commodities only 3. Weather No other asset class are so much influenced by weather patterns 4. Hedge Provides natural hedge against war, inflation, other asset portfolios, recessions etc. example -GOLD Bullion Gold Silver Palladium etc Agriculture Grains Pulses Edible oils/seeds Spices etc Commodities Base Metals Copper Zinc Aluminum Nickel Tin Energy Crude oil Heating oil Natural gas Furnace oil Etc. VALUE CHAIN PRODUCERS ASSEMBLERS TRADERS PROCESSORS DISTRIBUTERS/ WHOLESALERS RETAILERS CONSUMERS Features of Commodity Market • Setting up Mandis (Grain & vegetable Market) • Products • Participants • Trading • Price • Clearing, Delivery and Settlement • Regulation Commodity Derivative Market • A derivative is a financial instrument whose value depends on or is derived from the value of an underlined asset. The underlined asset could be: • Commodity • Foreign exchange • Equity • Interest rate • Index Commodity derivative is a contract to either buy or sell a commodity at a certain time in future at a price agreed upon at a time of entering into the contract FMC MCX Leader in Metals & Energy COMMODITY EXCHANGES NATIONAL EXCHANGES NCDEX NMCE NCDEX Leader in Agri REGIONAL EXCHANGES MCX NBOT 16 Regional Exchange Multi Commodity Exchange Bikaner Commodity Exchange Ltd., Bikaner NCDEX Bombay Commodity Exchange Ltd., Vashi NMCE Chamber Of Commerce, Hapur Indian Commodity Exchange ltd. Ace Derivatives and Commodity Exchanges Ltd. Central India Commercial Exchange Ltd., Gwalior Cotton Association of India, Mumbai East India Jute & Hessian Exchange Ltd., Kolkata First Commodities Exchange of India Ltd., Kochi Haryana Commodities Ltd., Sirsa India Pepper & Spice Trade Association., Kochi Meerut Agro Commodities Exchange Co. Ltd., Meerut National Board of Trade, Indore Rajkot Commodity Exchange Ltd., Rajkot Rajdhani Oils and Oilseeds Exchange Ltd., Delhi Surendranagar Cotton oil & Oilseeds Association The commodities traded comprise the following: at these exchanges Edible oilseeds complexes like Groundnut, Mustard seed, Cottonseed, Sunflower, Rice bran oil, Soy oil etc. Food grains – Wheat, Gram, Dals, Bajra, Maize etc. Metals – Gold, Silver, Copper, Zinc etc. Spices – Turmeric, Pepper, Jeera etc. Fibres – Cotton, Jute etc. Others – Gur, Rubber, Natural Gas, Crude Oil etc. As of March 2012, futures trading in urad, tur and rice remain suspended. Profitability Areas in Future Market Action Impact Cover raw material price risk Certainty in input cost. Certainty in cost of production Cover the export commitment Certainty about profits. Certainty in income Cover input requirements through futures market Less financing requirements; reduced interest cost. Reduces cost of production. Increase in profits Buy in futures markets Save on storage management costs. profitability and storage Increase in Developmental Activities in the Commodity Markets • Increasing the awareness levels of different categories of stakeholders, especially farmers • Sensitization of policy makers and capacity building in the commodity sector • Implementation of the Price Dissemination Project to empower the farmers with up-to-date price information on spot and futures markets. • Grant of permission to trade in commodity Contracts • Prohibition on fresh position in few commodities. • Crediting penalties to Investor Protection Fund. • SMS and E-mail alerts to clients by all National Commodity Exchanges. Methodology Analysis – Fundamental • Supply-n-demand, crop survey, climatic changes, policies, logistics, specifications, delivery stocks, physical market linkages etc – Technical • Chart patterns, indicators etc – Derivative • Volume and Open Interest Change, Contract duration, rollover, Relative analysis with other markets etc – Statistical • Correlation & regression study, Deviation, Seasonality, Ratio study etc. Nirmal Bang has come out with its technical report on precious mrtals, base metals and Crude oil. The research firm says Silver prices are expected to trade higher for the day one can maintain a stop loss below 61000 and enter long. –Gold prices are expected to trade positive and are likely to witness 31450 31500, one can buy on dips around 31280. Oscillators suggest prices are expected to trade higher. –Silver prices are expected to trade higher for the day one can maintain a stop loss below 61000 and enter long. –Crude price are expected to trade with a range from 4650 to 4800. For intraday one can trade within the range with a positive bias. Procedure for Trading in Commodities Open Demat & Trading A/C Filling KYC (Know Your Customer) Documents required : Pan Card, Address Proof, Cancelled cheque (MICR), Photo etc Acquire full knowledge of risk involved in futures Mark to Market Daily Pay-in & pay-out Margin requirements Contract expiry & rollover 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 future Contract, with participation from global player India’s Position in Commodity Market • Second largest producer of rice, wheat, sugarcane, cotton and groundnuts Amongst the five largest exporters of rice in the world and top ten exporter of wheat. • Largest producer of milk, jute and pulses in the world. Largest area in the world under pulse crops • Second largest fruit and vegetable producer, accounting for 10.9% and 8.6% of the world fruit and vegetable production respectively. 2011 figures from UN's Food and Agriculture Organization GLOBAL COMMODITY EXCHANGES • Oldest commodity exchanges in the world : 1. Chicago Board of Trade (CBOT) 2. Chicago Mercantile Exchange (CME) Disclaimer Clause: Views expressed in this presentation views of the author do not necessary reflect those of the Institute.