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Pratim Ranjan Bose
M.R. Subramani

MCX rule states settlements be made at LIFFE parity price

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Kolkata/Chennai Feb. 8 Robusta futures contract launched by the Mumbai-based Multi Commodity Exchange is being traded at a premium to LIFFE prices. MCX, while introducing the contract, had laid down rules that said settlement for robusta contracts would be made at LIFFE parity price.

But a look at the trading pattern (see table) reveals that the contracts are being traded at over three per cent premium.

A trader in Bangalore, when contacted, said the contract was being traded at a premium to make up for any deficiency in quality.

"As per the stipulations of MCX, robusta coffee moisture has to be 12 per cent. But the moisture for the consignments on offer are 14-15 per cent," he said.

"The higher price should provide cover for any lapse in fulfilling the contract," the trader said.

As on Wednesday, the open interest position in the counter totalled 521.

Default scenario

Sources in Kolkata said some of the buyers were looking into the possibility of default by sellers, who will have to shell out five per cent penalty. In that case, 90 per cent of the default payment will go to the buyer.

"This means, the buyer will make a net profit of one per cent," they said.

Traders in Kolkata are known for settling for lower margins.

The coffee scenario is in total contrast to the situation that was witnessed in the pulses counter a few months ago. Then, pulses were quoted lower than spot prices and traders said forward contracts were being offered at lower price as the stocks were being discounted on quality grounds. The traders also took into account that any stock of agricultural produce has to be discounted if it gets old.

Traders point to an incident that took place in another exchange's coffee contract. In that incident that took place over a year ago, a member who insisted on delivery was left with inferior quality coffee. Though the issue was settled, the commodity exchange made it a point to change the quality norms for contracts of later months.

MCX response

When contacted, a MCX official said: "Indian robusta prices in the physical market are currently ruling at a premium to LIFFE prices and the price trend prevailing on MCX platform is a true reflection of the market sentiment in the coffee market."

Coffee prices are currently ruling firm on tight supply-demand scenario. Lack of stocks with roasters, who have preferred to go on a hand-to-mouth existence all these days, is also a reason for the firm prices. A production lower than initial projections in the country has also led to strengthening of the prices. The Coffee Board last month pruned the production to 2.88 lakh tonnes from the post-blossom projections of 3.03 lakh tonnes. However, the industry feels that the production could be even lower.

Farm gate prices for robusta cherry, mainly in demand for exports, is currently being quoted at Rs 1,700-1,770 for a 50-kg bag, a recent high.

More Stories on : Coffee | Commodity Exchanges | Coffee

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