The Hindu Business Line : Pepper prices recover

THE pepper market, which witnessed a sharp decline last Friday following increased speculative activities, made some recovery on Saturday before readjusting to realistic levels on Monday and Tuesday.

On Wednesday, spot prices moved up by Rs 100 a quintal. MG 1 was sold at Rs 6,400 a quintal while un-garbled sold at Rs 6,100 as against Rs 6,600 and Rs 6,300 respectively on October 05. The futures also showed marginal improvement.

Trading sources attributed this upward trend to the Kerala Chief Minister, Mr Oommen Chandy's announcement that pepper procurement would begin in November, the beginning of the current harvesting season.

The sharp fall in recent weeks was attributed to the increased speculative activity in the market, market sources told Business Line.

According to them, with May delivery nearing maturity both at India Pepper and Spice Trade Association (IPSTA) here and the National Multi-Commodity Exchange, Ahmedabad, October delivery was trading at a very high premium as speculators who were holding long position in May were switching over to October at premium. This attracted many investors to buy spot pepper or take delivery of May and sell October delivery in various exchanges.

Now, however, October delivery is nearing maturity and speculators who purchased October at higher premiums have been forced to liquidate their purchases at prices lower than spot rates. This encouraged investors to buy back their October sales and sell spot material separately.

This fetched good returns for the investors, as after buying back October futures at a price lesser than spot rates, they were able to sell spot material to exporters.

Speculative activities had increased considerably also because the members of the NMCE had limited their activities, sourcing most of it to franchises the sources said.

"The franchise trades at lower margins, which attracts a large number of speculators as they pay a very limited amount of money," the sources said.

However, the franchise adjusts his client's business to the extent of the limited margins collected and squares off the business as soon as the margin is exhausted. "This gives the picture that the liquidity is much higher on those exchanges," they pointed out.

But even the daily turnover, which once had 10 times that of the regional commodity specific exchange has started declining and is less than five times now.

"Therefore, things are slowing being adjusted to realistic levels and the speculators, who lost the money are now blaming the NMCE," the sources said.

According to them, "one has to understand and accept the reality that the stock market — as well as the commodity derivative market — cannot be treated at par as commodity has its own way of trading and allied behaviours".