The Hindu Business Line : MCX launches plastics futures

The Multi Commodity Exchange of India Ltd (MCX) on Friday launched futures trading in plastics - polypropylene (PP) and high density polyethelyne (HDPE).

Mr Nikhil Meswani, Executive Director of Reliance Industries Ltd (RIL), inaugurated the futures trading and clicked the first trade of both the polymer. First trade was registered at Rs 63 a kg for PP contracts while first trade of HDPE registered at Rs 61 a kg. Trading in PP September and October 2005 and HDPE September and October 2005 contracts would be available for futures trading with effect fromFriday.

Speaking at the launch of plastic future trading, Mr Meswani said plastic contracts would be an important tool to manage the price risk, especially with the growing volatility in oil, natural gas and other feedstocks.

"Plastics contracts will have several benefits. First is margin stability, by allowing producers, converters and buyers to fix prices, in accordance with their production schedules and lock margins. Second, more stable margins and more secure investment plans reduce the probability of financial distress, a key input for valuation and lending models. This will diminish the fear of stocks loss in event of steep price fall. Third, polymer producers and processors can offer price stability to their customers without financial exposure. This will aid market expansion," Mr Meswani said.

The trading unit for PP and HDPE contracts are specified at two metric tonnes (t) by the exchange.

The tick size of the contract is 10 paise with a daily price limit of two per cent. The trading in a contract month would open on the 21st of the month and run for three months.

Each contract would expire on the 20th day of the contract month and there would be an initial margin of three per cent and delivery would be in lots of 10 t at exchange-approved warehouse at Bhiwandi.

India ranks eighth in the world in terms of consumption of plastics and is expected to be the third largest consumer of plastics after the US and China by 2010.

Currently, India has an estimated production capacity of 4.5 million tonnes annually of polymer.

Of this, 60-70 per cent accounts for the production of polyethylene (PE) and polypropylene (PP).

The industry demand is expected to touch about 7.3 mt by 2006-07 and 12.4 mt by 2010-11, according to MCX data.

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