Commodity Analysis

News Wrap: MCX launches copper options contract

BL Research Bureau | Updated on May 27, 2018 Published on May 27, 2018

The Multi Commodity Exchange of India has been launching a series of options contracts. It had earlier introduced options trading in crude oil, and last week introduced copper and silver.

MCX has silver options contracts expiring in June-18, August-18, November-18, February-19 and April-19, with 30 kg of silver as the underlying. Each option expiry has a minimum of 21 strikes available — 10 for ‘in-the-money’ (ITM), 10 ‘out-of-the-money’ (OTM) and one ‘near-the-money’ with strike price intervals of ₹250.

The European-styled silver options with a tick size of ₹0.50 are physically settled. The exercised positions of the options contract post-expiry shall devolve into the respective underlying future positions. This contract will enable silver stakeholders, including industrial consumers and producers, to harness the benefits of a new risk-management tool.

Similarly, in copper options, June, August and November 2018 contracts are available for trading with one MCX copper futures contact of one tonne as the underlying. The exercised positions of the options contract post-expiry shall devolve into the respective underlying future positions.

The usage of copper has surged in the past few years, owing to the growing demand in sectors such as electrical/electronic products, building construction, industrial machinery and equipment, transportation equipment, and consumer and general products. This gives the copper industry greater flexibility with alternative opportunities to mitigate price risk.

These options contracts are available to trade from 10 am to 11:30/11:55 pm on weekdays. MCX, to encourage active participation in the market, is not levying any transaction fees on all commodity options contracts till September 30, 2018.

Wheat imports could be stopped

The Centre has hiked the import duty on wheat to 30 per cent from 20 per cent, to reduce cheap imports and protect domestic growers. This has helped marginally firm up wheat prices in both spot and futures markets. The increase in the import duty comes in the wake of record domestic production and fear of cheaper imports from the international market, especially from Russia, where the production is expected to be better this year.

Last year, Indian wheat imports stood at about 1.5 million tonnes, the bulk of which was imported by mills in the South from countries such as Australia and Ukraine. The Centre has procured a huge quantity of wheat this crop year, and is looking to dispose the stock to bulk consumers, including flour millers, at a price of ₹1,900 per quintal. However, procurement has exceeded the targeted levels in Punjab, Haryana and Madhya Pradesh. Also, the falling rupee against the dollar could stop the wheat imports.

Re-exporters get nod to import pepper

The Centre has permitted 78 companies to import 2,500 tonnes of black pepper duty-free under the Indo-Sri Lanka Free Trade Agreement. This is with a specific direction that imports should not be at prices below the notified MIP (minimum import price) of ₹500/kg. The 78 companies, which process and re-export, can import up to 32 tonnes each. In April, pepper prices had taken a hit due to issues such as large quantities smuggled into the market.

However, spice exporters pointed out that the MIP notification has not helped improve pepper prices in the domestic market, with the rates moving southwards and hovering at ₹360-380 per kg depending on the grades.

According to the All India Spices Exporters Forum, MIP norms has created a black market for pepper imports, and boosted smuggling.

It has also facilitated setting up several value-addition units in Vietnam and Indonesia.

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