Big Picture. Aluminium delivery at MCX: An intro

Through a circular released on October 16, 2017, SEBI — the commodity derivative market watchdog — made it mandatory for all commodity derivative contracts to have the option of being settled through physical delivery. It gave exemption to commodities that are intangible and those for which storage and transportation are difficult. This meant that while crude oil and natural gas can continue to be cash-settled, all metal futures on the platform of commodity exchanges should become ‘compulsorily deliverable’ along with gold and silver contracts.

The move saw the Multi Commodity Exchange (MCX) change the specifications of its aluminium and zinc future contracts in January and moving them from being cash-settled to compulsorily deliverable, beginning March and April, respectively.

The delivery option in the metal futures contracts at the exchange brings several advantages, especially for SME and MSMEs that are short-changed by metal traders in pricing and delivery. For buyers of metals, the exchange platform provides delivery assurance and transparent pricing. For a seller, the platform helps sell the tradable excess (over and above the contracted amount) of every month at the market-determined price. Towards the end of the contract, if the market price is higher, they can anyway square off the position and sell in the market.

With the first physical settlement for aluminium in MCX coming up, below are a few things traders/hedgers on the exchange platform should know.

The expiry of the contract remains the last working day of the month, as always. So, for the March aluminium contract, it is March 29. Trading will close on the day at 5 pm (earlier, it was 5.30/6.30 pm).

The last five days of the contract (beginning March 25 for the March aluminium contract) is called the tender period (TP). If you keep your position open in this period, for every day of open position, you will be charged an incremental margin of 5 per cent (of the contract value). This will be in addition to the initial margin and the additional/special margin, if any.

Once the buyer of the contract settles his total due on the contract, the TP margin collected is refunded. A seller of a contract on the exchange platform, too, has to cough up the TP margin. But if he makes an early pay-in of the commodity, he can avoid paying the margin, though mark-to-market margin has to be paid. (All open positions at the end of day are marked to market, and the difference between the open position and the previous close price is either collected or credited to the client’s account with the broker every day).

The normal pay-in for commodities and funds is 11am on E+1 (one day after expiry). But goods need to be brought to the warehouse at least two days prior to the expiry of the contract to finish the formalities.

Producer

A producer or trader who has a ‘sell’ position on the aluminium contract on MCX has to deliver the commodity to the exchange warehouse in Thane, Maharashtra. Also, note that the aluminium should be of the quality specified under the contract — ingot of 99.7% per cent purity — and accompanied by necessary documents. The ingots should weigh 9-26 kg. They should be delivered in bundles of 1 tonne each. The minimum acceptable delivery quantity is 5 tonnes.

Also, the ingot bundles should carry the producer’s sticker, reflecting the producer’s name, net weight, batch number, purity, number of pieces of ingots in a bundle, and date of manufacturing. Note that only London Metal Exchange (LME)-approved brands will be accepted. In India, the LME-approved aluminium brands are from Hindalco, National Aluminium Co, Vedanta and Bharat Aluminium Co.

As a seller, you can do delivery pay-in only through a ComRIS (Commodity Receipts Information System) account where your physical stock in the warehouse gets converted into e-receipts. ComRIS is a web portal operated by the MCX Clearing Corporation that maintains electronic records of commodities deposited at the exchange’s warehouse and gives real-time information on the movement of commodities from the warehouse.

To open a ComRIS account, you need to approach one of the ComRIS participants (commodity brokers), the information on whom you can find on the exchange website. Once the account is opened, you can log in with your credentials and express the desire to deposit goods to the warehouse service provider (WSP).

After this, the WSP will get back to you and you can give the preferred date and time of delivery of goods. Once the WSP confirms the date and time, you can take the goods to the warehouse. At the warehouse, after the necessary documentation, the WSP will accept your commodity, and an electronic warehouse receipt will be issued. This will reflect on your ComRIS account.

Consumer

A trader who has a buy position on the aluminium futures contract has not much to do. You need to just ensure you make your full payment on the pay-in date. Note that you will have to arrange for the transportation of the commodity from the warehouse to your plant. You will also require a ComRIS account. You can open it any time; you need not wait till delivery.

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