The National Commodities and Derivatives Exchange (NCDEX), the country’s largest agriculture commodity exchange, is chartering a major comeback with plans to launch futures trading in coffee and PVC (polyvinyl chloride).
This is part of its plan to launch new contracts in commodities that are not price-sensitive. The bourse is also planning to introduce liquidity enhancement scheme (LES), which is considered as market-making, in steel, said Arun Raste, Managing Director, NCDEX.
The exchange has got the clearance of market regulator Securities and Exchange Bureau of India (SEBI) for launching the LES in steel.
Sudden ban a setback
NCDEX had faced a major setback when Sebi last year suspended futures trading in seven commodities including non-basmati rice, wheat, green gram, soyabean and its derivatives, rapeseed-mustard complex, crude palm oil and chana for one year.
Among these commodities, NCDEX had a major share in soyabean, rapeseed/mustard complex and chana trading.
Raste told Business Line that the sudden ban on futures trading in select agriculture commodities was “of course unfortunate but it is not the end of the road” as Sebi has approved 90 commodities on which futures trading can be launched provided the value chain participants benefit from it.
“We have done a detailed study and were surprised that coffee commands a 30 per cent market share in hot brewed drinks. The market for coffee is vibrant with a lot of leading brands contesting for prime position,” he said.
The exchange expects to launch futures trading in coffee by the first quarter of this fiscal and simultaneously work on LES for steel, said Raste, a veteran from the National Dairy Development Board with vast experience in agriculture and allied fields.
Experiments with coffee futures
This is not the first time that futures trading is being launched in coffee. Coffee was among the first series of commodities in which futures trading was initiated with the Coffee Futures Exchange of India incorporated in 1997.
However, the trading failed to take off as expected owing to poor participation of growers and it had to be wound up after a couple of years.
Similarly, the National Multi Commodity Exchange (NMCE) launched coffee futures in 2005 and NCDEX’s competitor Multi Commodity Exchange also launched futures in Robusta coffee in 2007. However, both futures had to be discontinued, failing to attract good participation.
India exports two-thirds of the coffee produced and is the third-largest producer and exporter in Asia. It is the sixth-largest producer and fifth-largest exporter of coffee globally.
It is grown mainly in Karnataka, Kerala and Tamil Nadu, besides a few States including Andhra Pradesh and the North-East.
Indian coffee is exported to western nations such as the US, Italy, Germany, Belgium, Jordan, and Russia, among other countries.
‘In touch with farmers’
PVC is another area where the exchange is closely working with the industry and should have the plans ready soon. There are many big brands involved in PVC (Polyvinyl chloride) value chain with ample export opportunities, Raste said.
After the ban on seven commodities last year, Raste said the exchange, typically, wants to focus on non-price sensitive commodities through it has been proved beyond doubt that futures trading does not contribute to the increase in price. It only sends signals on future price trends.
The exchange is still in touch with farmers from soyabean and RM seed growing villages and as soon as the trading restrictions are lifted on these commodities, the exchange will list them for trading.
“It is well proven that once an exchange gains investors and traders’ interest in a particular commodity they do not move to other exchange, the NCDEX chief said.