Bear operators drag pepper futures

G. K. Nair
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After taking over the pepper market last week, bear operators pulled prices down sharply.

Bull operators, who were pushing up the market without any fundamental support and after having cornered an estimated 5,000 tonnes of the material, are said to be finding it difficult with the disposal of the huge stock which they are holding at present.

Domestic buying is likely to pick up only after Monday as markets in North India were closed for holidays. Secondly, buyers being aware of the fact that the new pepper will start trickling in from next month were inactive.

The next crop is estimated to be higher than last year.

Therefore, the upcountry dealers/stockists were buying only hand to mouth now on the hope that they would be able to buy at lower prices when the arrivals picked up from January-March, market sources, told Business Line.

Now, January contract is not listed on the exchange citing it as a lean month. The validity of December contract will expire on January 5 and thereafter, there won't be any material available on the exchange, barring what the operators cartel holds.

As holding on such huge quantity would involve huge expense, the cartel might be forced to liquidate in January. Along with this, the new crop would also arrive in the market in large quantities.

Thus, there is a possibility of a “glut situation in the market in January”, market sources claimed.

“The pulling down and pushing up by both the operators of the market at their whims and fancies at the cost of the credibility of the futures trading is not a good sign,” a source said. The regulator, of late, is understood to have initiated some action to probe the alleged manipulation of the market from June last, they said.

There was lot of switching over to December and additional buying, they said.

The operators are appear to “be caught up definitely”, they said. The prices have not shot up as they anticipated because the new crop is expected to trickle in from mid-December and it will be in full swing from January.

Looking at this possibility, domestic dealers were buying only hand to mouth, they said. Besides, systematic liquidation was there earlier by growers and dealers when the prices were ruling above Rs 410 a kg, they claimed.

They alleged that by not listing Jan contract on the exchange claiming that it is a lean month the authorities have done a mistake.

According to the trade/growers mid-December through March and even April is the peak harvesting season and consequently of good arrivals. “Therefore, de-listing of January from the exchange is appears to be a clear indication of lack of domain knowledge about the crop”, they alleged. Instead of January, June/July should have been selected for de-listing as that was the lean period.

From mid-December onwards and till March/April India has a chance for shipping out of pepper till the entry of Vietnam with its new crop.

It would be possible only if the Malabar pepper prices remained at par with other origins which are still far below the Indian parity by over $1,000 a tonne. There are also selected overseas markets/ buyers for Malabar even at a premium of $200-300 a tonne. If the current trend in the futures market continued with the arrival of good quantity of new pepper, there is every possibility of Indian pepper becoming competitive in the international market.

\Weakening of rupee against the dollar would, at the same time, make imports costlier, they said.

All the active contracts fell sharply last week. Nov, Dec and Feb decreased by Rs 2,135, Rs 2,240 and Rs 700 a quintal to close at Rs 39,605, Rs 38,740 and Rs 35,640.

Total turn over dropped by 2,176 tonnes to close at 13,103 tonnes. There appears to be a circular trading to pull the prices down by the bear operators who have taken control of the market. Total net open interest increased by 265 tonnes to 8,368 showing switching over and additional buying during the week.

On the spot the prices fell in tandem with futures market trend by Rs 1,300 a quintal to close at Rs 38,000 (ungarbled) and Rs 39,500 (MG 1) a quintal at the weekend. Indian parity in the international market fell by nearly $1,000 a tonne to close at $7,450 (c&f) for the Europe and $7,750 (c&f) a tonne for the US.

(This article was published on November 18, 2012)
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