Compulsorily deliverable futures contracts in base metals at MCX will benefit consumers, said Chittaranjan Rege, Head of Base Metals, MCX, at the Commodity Conclave held in Bengaluru on Monday.

The Conclave was promoted by MCX in association with BusinessLine .

The delivery option in the metal futures contracts helps consumers as the price is domestically discovered taking into account the local demand-supply situation. Price discovery is done through a polling process ensuring transparency , Rege said .

Aluminium and zinc futures contracts at the exchange are compulsorily deliverable now (zinc futures is compulsory from April ).

A trader who has a sell position on the contract has to deliver the commodity at the exchange warehouse in Thane, Maharashtra. And, all the metal delivered to the exchange should be LME-approved brand and of quality specified under the contract, Rege added. In the keynote address, Shekar Viswanathan, Vice-Chairman and Wholetime Director, Toyota Kirloskar Motor, explained the role of commodity exchanges and benefits of futures contracts. Metal exchanges play a crucial role by taking out the intermediary and acting as a guarantor ensuring physical delivery of products. It was important in the Indian context as manufacturers will get delivery of the metal at a fixed price and fixed quality. G Chandrasekhar, an independent commodities expert, said the volatility in global commodities market would continue in 2019, which faces headwinds such as currency movements, geopolitical tensions, slowdown in economic growth, and monetary policies of large economies will continue to impact price movements. Explaining the benefits of hedging, Chandrasekhar said it helps protect profit margins for manufacturers. “Hedging is not speculation. Not-hedging is speculation,” Chandrasekhar added.

Shashibhushan, the representative from CPAI, said metal exchanges were absolutely safe as they were regulated by SEBI and that the transaction costs of placing the hedges were minuscule compared to the value of the commodity traded. Basavaraj Javali, President, Karnataka Small Scale Industries Association, said the biggest challenge faced by SMEs was sourcing the right quality of raw material at the right time and right place.

Sudhakhar Shetty, President, Federation of Karnataka Chambers of Commerce and Industry, stressed the need to create awareness among SMEs on the availability of tools such as hedging to counter risks associated with price volatility.

Anil Surana, Secretary, Copper Consumers Association of South India, raised the question on how the exchange will protect a buyer if there is a default by a seller. To this, Rege said , “If the seller fails to fulfil his obligation, he will be charged a penalty. He will also be required to pay the replacement cost, i.e., the difference between the then spot market price of the commodity and the actual settlement price of the contract.

Rajalakshmi Nirmal, Deputy Editor, BusinessLine , moderated the panel discussion

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