The Hindu Business Line : Action shifts from rubber futures as spot prices stabilise

AS it nears two years, futures trading in rubber has slowed down with everyday volumes shrinking, but experts say that this trend is normal in line with the stable spot prices.

In the first fortnight of this month, for instance, the daily volumes have never gone beyond 1,500 tonnes in any of the three exchanges where rubber futures trading takes place.

In the National Multi-Commodity Exchange (NMCE), the largest volume recorded during January 1-15 was 1,327 tonnes on January 5. In MCX, it was 645 tonnes on the 14th, and on NCDEX, the largest volume traded was 702 tonnes on the January 7.

On most of the other days, volumes were in the range of 600-1,000 tonnes in NMCE, and much lower in the other two exchanges. These volumes are significantly lower that than average 2,000 tonnes traded when rubber futures completed one year in March 2004.

The relative inaction in the rubber futures market is attributed to prevailing rubber prices, which have shed the tendency for any wild fluctuation. This has dampened the enthusiasm of speculators to invest in rubber futures.

According to Mr Giby Mathew, Managing Director of JRG Wealth Management Ltd, a broking firm providing futures trading, trading interests have shifted to other commodities such as pepper as rubber prices have more or less stabilised in the spot market.

Pepper is now doing two to three times the volumes of rubber on NMCE.

"The price is stagnant and hence the speculation activity has come down in rubber futures," says Mr C.P. Krishnan, Senior Vice-President, Geojit Infofin Technologies, which pioneered rubber futures. He said last year too, a similar trend was witnessed during this time.

Natural rubber prices had skyrocketed during June-July last year, boosting futures market along with it. However, prices fell in the subsequent months and now rule around Rs 52 a kg. Price variations have by large been around Rs 2 a kg, giving not enough room for speculation in futures market.

In futures trading, buyers and sellers enter into contracts to buy/sell rubber at a future date at a price they agree today. The seller need not have physical custody of rubber at the time of striking of the deal. The parties often end up squaring off the deal without actually selling/buying the physical rubber.

"Volumes in rubber futures will pick up only if there is significant fluctuation in the market. Also, we have noticed that if prices are showing an upward trend, futures market gets more active," said Prof. K.K. Abraham, President of Pala Marketing Society.

Mr Mathew said even though the volumes had thinned, the retail participation had increased in the futures market. "There are more genuine players who trade in smaller quantise these days."

Mr Krishnan said this trend was corroborated by the fact that 7-8 per cent of delivery took place at the end of the contract period, compared with 0.5 to one per cent internationally.

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