Commodities

New concentration margin to hit trading volumes further

Suresh P Iyengar Mumbai | Updated on May 12, 2021

It is levied to discourage a single or group investors attempt to corner the floating stock in the market to boost prices artificially

The sharp rise in agriculture and non-agriculture prices on the futures market and subsequent levy of concentration margin by MCX is expected to further hit trading volumes on the derivatives platform.

Starting May 17, MCX will charge an additional concentration margin of up to six per cent as part of its risk management to avoid default.

The concentration margin is levied to discourage a single or group investors attempt to corner the floating stock in the market to boost prices artificially.

The threshold open interest limit for re-launched commodities has been fixed at ₹250 crore for narrow and sensitive commodities and ₹500 crore for broad commodities. These minimum thresholds will be applicable for one year from the date of launch of contracts in new and re-launched commodity, said MCX.

The levy of peak margin implemented since last December has already pulled down the average daily turnover on MCX by 28 per cent month-to-month with 50 per cent peak margin requirement. This margin being implemented in stages will hit 100 per cent by September.

Peak margin is the maximum margin obligation of a market participant at any given time in the derivative segment.

The burden on traders has increased with commodity prices shooting up since start of this year tracking the firm international trend.

Naveen Mathur, Director (Currency and Commodities), Anand Rathi said global commodity prices have been rallying on signs of faster recovery in the US and European economy while being price taker Indian commodities are just following that trend irrespective of demand trend in India.

The recent depreciation of rupee against dollar is an additional factor that is pushing up commodity prices in India, he said.

However, in last two months volumes on the exchanges have dipped and going ahead it will either fall further or stagnate at the current levels, said Mathur.

The excess liquidity unleased by central banks across the globe to salvage the economy ravaged by Covid pandemic has been driving various asset classes including exchange traded commodity derivatives.

Soyabean futures prices on NCDEX have rallied 66 per cent to ₹7,638 a tonne since start of this year tracking the firm trend in global markets while crude oil and copper on MCX have risen 35 per cent and 31 per cent to ₹4,760 a barrel and ₹786 per kg.

However, the demand for these commodities in India has slowed down especially with governments imposing strict restrictions to break the chain of Covid spread.

Moreover, business at the retail outlets has been hit by either complete shut down or truncated working hours.

FRESH CONCERN

Price*

YTD change

Soyabean (per quintal)

₹7638

66%

Crude Oil (per barrel)

₹4760

35%

Copper (per kg)

₹786

31%

Crude Palm Oil (tonne)

₹1232

27%

Turmeric (quintal)

₹7496

27%

Cottonseed Oilcake(quintal)

₹2533

26%

Mustard Seed (quintal)

₹7343

26%

Channa Gram (quintal)

₹5381

23%

Refined Soya Oil (10 kg)

₹1457

22%

Agridex Index

₹1418

22%

Natural Gas (mmBtu)

₹217

19%

Aluminium (per kg)

₹201

18%

MCX / NCDEX Price as on last Friday

Published on May 12, 2021

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