MCX to amend cotton contract

Suresh P Iyengar Mumbai | Updated on July 26, 2021

Will include reflectance, colour quality in contract specification

The Multi Commodity Exchange of India Ltd (MCX) will modify its cotton contract specification as the pink boll-worm’s frequent attack is impacting the quality of cotton available in the market.

The industry has also changed the way it grades the cotton based on its reflectance and colour. The change in contract specification will lead to more delivery on the exchange and benefit the entire value chain.

Based on the market feedback, MCX has added cotton Grade RD (Reflectance) and +b (Yellowness) for delivery on the exchange. The basis grade RD 76 value and +b up to10.2 will replace the existing standardised grade.

The inclusion of RD value and +b would give more confidence to domestic spinning mills buyers as they procure cotton based on RD value and +b quality.

MCX will award a premium of one per cent for RD above 77. The discount of 1.50 per cent for RD 75.50 up to 74 and additional discount of two per cent applicable below RD 74 to 73. The exchange will review and modify RD value and its premium/discount before the launch of every new season contracts, said sources.

As per the physical market feedback, the maximum quantity of trash allowed will be reduced to 4.5 per cent from existing five per cent. While discount ratio has been kept at 1:1, trash value basis is reduced to three per cent from existing 3.5 per cent along with its matrix of premium and discount.

Delivery centre shifted

The exchange has also moved the additional delivery centre to Adilabad in Telangana from Warangal. The changes in cotton contract will be implemented in the November contract which will be available for trading from August 2.

Cotton delivered on the exchange platform declined two per cent last fiscal to 3,42,858 bales (of 170 kg each) against 3,51,170 bales logged in the previous financial year. Average trading volume also plunged 57 per cent to 29,764 bales (69,000 bales) while open interest more than halved to 1,16,241 (2,41,000) bales.

Sanjay Garg, President of Northern India Textile Mills’ Association, Chandigarh, said spinners will now be more comfortable in securing forward position through the exchange with addition of RD value in the contract specification.

Sushil Kumar Jhamb, Senior Vice-President, Ludhiana-based Vardhaman Textiles, said the RD value is vital for quality yarn production and MCX cotton contract will be in line with the international contracts of cotton.

The modification in the contract will benefit all the participants in the supply chain to hedge their risk on exchange platform.

Spinning mills had fixed the bare minimum threshold of reflectance at 75/76Rd which has now become a standard even in export markets such as Bangladesh.

Published on July 26, 2021

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