‘Ban syndrome’ grips the commodity market again

Market regulator SEBI’s decision on Thursday to ban chana futures trading on the NCDEX has sparked investor fears that similar action could be taken on other agriculture commodities, if prices spike sharply.

The ban syndrome has re-emerged after a hiatus of four years, when erstwhile regulator Forward Markets Commission banned futures trading in guar seed in 2012, as prices rallied relentlessly.

Late on Thursday, SEBI said the decision to ban chana futures was taken as an “abundant caution”, considering the demand and supply gap as reflected from the price trend and supply constraints in the near-term.

Chana is the only pulse being traded on the exchange platform, while urad and tur were banned a decade ago.

The low ratio between average daily traded volume and actual delivery of the commodity has stoked the regulator’s concern on speculation. The average daily traded chana volume on the NCDEX in June was 25,800 tonnes, while only 120 tonnes were marked for delivery.

In May, the exchange traded 28,277 tonnes daily, while delivery was only 760 tonnes. Similarly in April, the peak arrival month, about 66,940 tonnes were traded and 2,280 tonnes were delivered on the exchange platform.

While analysts argue that the futures market is not for taking delivery of commodities, SEBI is concerned that a market that delivers less than two per cent of the volume traded is sending price signals to spot markets.

Naveen Mathur, Associate Director, Angel Broking, said the ban has hit investors’ sentiments and is likely to have an impact on trading in other agriculture commodities.

Chana prices on the futures market have been rising steadily for the last three months, reflecting the firm trend in the spot market.

The chana futures ban is unlikely to have an impact in the spot market, on the back of strong demand and weak supply due to two consecutive years of low output.

The June Chana contract price has risen by 20 per cent in the last two months, touching ₹6,900 a quintal on Thursday against ₹5,745 a quintal in April. In May, it was trading at ₹6,127 a quintal.

NCDEX’s spot polled price reflects the rising price trend. It had risen 22 per cent to ₹7,000 a quintal on June 16, against the ₹5,720 recorded in April.

Veeresh Hiremath, Research Analyst, Karvy Comtrade, said the ban would have an impact on trading in other liquid agriculture commodities such as turmeric, sugar, cotton, edible oil and mentha oil.

“I do not think chana prices in the spot market will come down because of the ban on futures trading. This was proved beyond doubt when tur and urad were banned decade ago,” he added.

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