The Solvent Extractors’ Association (SEA) of India has requested the Securities and Exchange Board of India (SEBI) to permit the resumption of futures trading in crude soyabean oil and crude palm oil (CPO) in commodity exchanges, for risk management and price discovery mechanism.
In a letter to Madhabi Puri Buch, Chairperson of SEBI, the SEA President, Atul Chaturvedi, said SEBI had suspended future and options trading in seven agri derivatives contract for one year. Stating that almost nine months have passed, he said there is a need to re-look at the relevance of these suspensions.
Referring to the developments in the past few months, he said edible oil importers have faced huge losses due to a double whammy arising out of abnormal volatility in international and domestic prices on the one side and a weakening rupee on the other. Incidentally, futures trade in soya oil and CPO remained suspended for the most part of this period, depriving importers hedging their price risks in rupee-denominated soyaoil and CPO futures on Indian bourses, he said.
“It would be pertinent to look at the price behaviour since the suspension was resorted to. Apparently, the price rise seems to be the reason for considering these suspensions. We have analysed the price behaviour of major edible oil and oilseeds and have found that they have behaved as per the larger international fundamentals (which they were doing even before suspension),” he said, adding India is a major importer of edible oil and hence the supply-demand dynamics in the international market directly impact the domestic prices.
Need for healthy futures
Chaturvedi said SEA is of the view that futures market is not responsible for edible oil inflation as the same has been proved in the recent run up. The recent run up had nothing to do with futures market as it was not operational.
He said a healthy futures market is essential for risk management and orderly development of commodity markets. In the absence of risk management tool, importers buy in smaller consignments adding risk premium to manage the price moments. This can result in higher prices to the end consumer. Given such a scenario, edible oil exchange-traded derivatives offer the best tool to manage price risk for the trade participants, he said.
Stating that futures market provide price signals to stakeholders, he said the market is deprived of benchmark price after the futures contract suspension, thereby increasing price variation from spot market and hurting farmers’ interest.
Under these circumstances, SEA requests SEBI resumption of futures trading for risk management and price discovery, he said.
This will go a long way in improving the supply chain and replenishing buffer stocks, thereby helping tackle inflationary pressures in food much better, he added.