INDIAN COMMODITIES MARKET March 14, 2007. 2 NCDEX – 6 th largest commodity exchange in the world...
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INDIAN COMMODITIES MARKET
March 14, 2007
2
NCDEX – 6NCDEX – 6thth largest commodity exchange largest commodity exchange in the worldin the world
169,213
99,17593,138
78,629
61,81450,698
42,05533,790 33,150 28,473
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
in '0
00s
NYMEX Dalian CBOT LME TOCOM NCDEX ICE ShanghaiFutures
NYBOT Zhengzhou
Source: UNCTAD, SFOA “ The world’s commodity exchanges – September 2006
3
NCDEX- 3NCDEX- 3rdrd largest agro-commodity exchange largest agro-commodity exchange in the worldin the world
99,175
91,872
43,287
33,14928,473
25,575
12,5019,503 8,499 7,156
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
in '0
00s
DalianCommodityExchange
CBOT NCDEX NYBOT ZhenzhouCommodityExchange
TokyoGrain
Exchange
ChicagoMercantileExchange
ShangaiFutures
Exchange
EuronextLIFFE
TokyaCommodityExchange
Source: UNCTAD, SFOA “ The world’s commodity exchanges – September 2006
4
Market growth of 265% over FY05 volumes; Market growth of 265% over FY05 volumes; 56% growth over FY0656% growth over FY06
Unlike developed markets, participation in Indian market is more Unlike developed markets, participation in Indian market is more retail & individual and not institutionalretail & individual and not institutional
14.77 29
127
474.33
739.2
0
100
200
300
400
500
600
700
800
900
1000
FY03 FY04 FY05 FY06 April-Feb2007
US
D B
illio
n
5
Current physical volumes
Value chainFutures Traded
Volumes
17.5 175
48.0 239
175 1,225
85 426
325 2,065
*
Bullion
Metals etc
Agriculture
Energy
Total
FarmersAgents
WholesalersProcessorsRetailers
Present volumes a fraction of the potential Present volumes a fraction of the potential USD Bn
Source: NCDEX
6
Present legal & regulatory environment Present legal & regulatory environment
7
Market Structure- Futures and SpotMarket Structure- Futures and Spot
Spot marketsSpot markets
Futures MarketFutures Market
Forward Markets
Commission
Forward Markets
Commission
Ministry of consumer
Affairs
Ministry of consumer
Affairs
Unlike Forex and Stock markets; Spot markets in commodities
are not within the purview of the Exchanges/Regulators
State GovernmentState Government
8
Regulatory Structure in IndiaRegulatory Structure in India
Banking /
NBFCs
RBI
Ministry of Finance
SEBI
Capital
Markets
NABARD
Co-operative Banks &
Regional Rural Banks
Ministry of Consumer
Affairs
FMC
Commodity
Exchanges
Insurance Regulatory
Development Authority
(IRDA)
InsurancePension
Funds
SIDBI
State Financial
Institutions
National
Housing Bank
Housing Finance
Companies
Company
Law Board
Corporates
Pension Funds Regulatory
Development Authority
(PFRDA)
9
20 Other Regional 20 Other Regional ExchangesExchanges
20 Other Regional 20 Other Regional ExchangesExchanges
NMCENMCENMCENMCE
CommodityCommodity ExchangesExchangesCommodityCommodity ExchangesExchanges
MCXMCXMCXMCX
Structure of Indian Commodity Futures Exchanges
NationalNational exchangesexchangesNationalNational
exchangesexchangesRegionalRegional
exchangesexchangesRegionalRegional
exchangesexchanges
FMCFMCFMCFMC
NBOTNBOTNBOTNBOTNCDEXNCDEXNCDEXNCDEX
10
Going forward …Going forward …
11
New ProductsNew Products Market would move towards trading more exotic
products Index based products
Commodity Indices Rainfall & other weather indices
Spread Trading Electricity Real Estate Emission Credits
..Idea will be to forge closer links with global commodities
12
InstrumentsInstruments to be introducedto be introduced
Options Provide up-side benefits to the market
participants Offer a market driven MSP to the farmers
Indices Built-in diversification
Exchange for Physicals (EFPs) Easy of trade for hedgers who would like to take
or make deliveries
..new instruments to attract new market participants
13
Attracting new participantsAttracting new participants
Farmers Offering them pre & post harvest risk mitigation
platform Ease of trade through aggregators
Banks Role of aggregators Proprietary trade
Mutual Funds Attracting retail trade to the commodity
exchanges FIIs FDIs
14
Risk Mitigation: Pre-harvestRisk Mitigation: Pre-harvest
Small FarmersSmall
FarmersSmall
FarmersSmall
Farmers
AggregatorsAggregators
Banks
Insurance
NCDEX
NCMSL
Banks
Insurance
NCDEX
NCMSL
Future price ensuredFuture price ensured
Liquidity enhancedLiquidity enhanced
Weather Weather derivatives /Crop derivatives /Crop
Insurance Insurance
Weather Weather derivatives /Crop derivatives /Crop
Insurance Insurance Bank lendingBank lendingBank lendingBank lending
Large FarmersLarge
Farmers
15
Risk Mitigation: Post-harvestRisk Mitigation: Post-harvest
Small FarmersSmall
Farmers
Sell forwardSell forward
Storage facilityStorage facility
Assaying & gradingAssaying & grading
Commodity backed Commodity backed bank finance (WR)bank finance (WR) Commodity backed Commodity backed bank finance (WR)bank finance (WR)
Large FarmersLarge
Farmers
Banks
NCDEX
NCMSL
Banks
NCDEX
NCMSL
16
Survey carried out by A C NielsenSurvey carried out by A C Nielsen
Yes12%
No88%
Yes78%
No22%
Wide Area Sample, Sample Size - 255 Narrow Area Sample, Sample Size - 473
Over 78 % of farmers from NAS & 12 % of WAS agreed that they have benefited out of the price discovery taking place through commodity exchanges
As NAS respondents are well aware of market dynamics ( including futures market, they are able benefit through better price realization)
Increase in awareness level in interior areas about commodity futures will help the farmers
17
Typical farmers awareness programmesTypical farmers awareness programmes
A large number of participants Alwar, Rajasthan on 27 February 2007
Speakers include the regulators – FMC; key officials of NCDEX; important officials of the government machinery
18
Increased bank participation on the Increased bank participation on the exchange platformexchange platform
farmer
farmer
farmer
Bank branchBanks takes consolidated position on behalf of its customers
Bank branch
Exchange
farmer
farmer
Bank to also take proprietary positions
19
Facilitating lending against commodities Facilitating lending against commodities
Banks’ lending against commodities in FY06 was USD 1,334 million
NCMSL facilitated finance against commodities to the tune of about USD 80 million as on 31st March, 2006 ICICI Bank: USD 50 million HDFC Bank: USD 22 million Other banks: USD 8 million
Average Interest rate charged: 9.5% - 10.5% Number of defaults so far: NIL
20
Facilitation requiredFacilitation required
RBI Working Group Recommendations
Banks to be allowed to have proprietary positions in
agricultural commodity derivatives
Evolution of a system for warehouse receipts which
would be freely transferable
Banks to be granted general permission to become PCMs
of commodity exchanges
21
Foreign AccessForeign Access
Foreign access permitted in securities market- equities & bonds under regulation
Currently can access commodity markets by setting up a domestic entity – for broking & investment Require prior approval from FIPB
Precedents: Permission granted for Proprietary trade only
No precedents for Client trade
22
Permits Foreign Investment in infrastructure companies in Indian Stock Exchange to the tune of 49%, of which
26% - FDI (Foreign Direct Investment)o With specific prior approval of FIPB
23% - FII (Foreign Institutional Investment)o FII will be allowed purchases in secondary marketo FII shall not seek & will not get representation on the
Board No foreign investor, including persons acting in concert, will
hold more than 5% of the equity capital
Similar notification expected for commodity markets…
RBI/SEBI notification dated 22.12.2006RBI/SEBI notification dated 22.12.2006
23
Regulatory Action in Jan-Feb 2007Regulatory Action in Jan-Feb 2007
24
Sudden delisting of important cereals & Sudden delisting of important cereals & pulses - Jan-Feb 2007pulses - Jan-Feb 2007
Delisting of Urad & Tur contracts – Jan 07
Suspension of Rice & Wheat contracts – Feb 07
Future Prices as of Jan 23 Spot Prices as of Jan 23
Spot Price as of Mar 06
Feb Expiry
March Expiry
May Expiry
Urad 71.86 69.88 65.31 78.88 71.88
Tur 50.68 55.04 56.95 51.93 49.24
(USD/Quintal)
Urad: Crop arrivals from Andhra & Burma expected in Feb-March
Tur: Arrivals in March; 30-40% expected production shortage
25
NCDEX wheat price movements NCDEX wheat price movements
800
850
900
950
1,000
1,050
1,100
1,1500
1/0
2/2
00
7
02
/02
/20
07
03
/02
/20
07
05
/02
/20
07
06
/02
/20
07
07
/02
/20
07
08
/02
/20
07
09
/02
/20
07
10
/02
/20
07
12
/02
/20
07
13
/02
/20
07
14
/02
/20
07
15
/02
/20
07
16
/02
/20
07
17
/02
/20
07
19
/02
/20
07
20
/02
/20
07
21
/02
/20
07
22
/02
/20
07
23
/02
/20
07
24
/02
/20
07
26
/02
/20
07
27
/02
/20
07
28
/02
/20
07
01
/03
/20
07
Rs/ quintal
Spot F-Feb-07 F-Mar-07 F-Apr-07F-May-07 F-J un-07 F-J ul-07 F-Aug-07
Temporary ban on wheat imposed
Temporary ban; expected to be lifted soon…
26
Innovations by NCDEXInnovations by NCDEX
27
Spot price pollingSpot price polling
Commission Commission AgentsAgents
Commission Commission AgentsAgents
ManufacturersManufacturersManufacturersManufacturers
RefinerRefinerRefinerRefiner
Mill ownersMill ownersMill ownersMill owners
TradersTradersTradersTraders
MandiMandiMandiMandi
Statistical Statistical
Cleansing Cleansing
of of
raw dataraw data
Statistical Statistical
Cleansing Cleansing
of of
raw dataraw data
Polled PricesPolled Prices
Exchange WebsiteExchange WebsiteExchange WebsiteExchange Website
Trading TerminalsTrading TerminalsTrading TerminalsTrading Terminals
Info-vendor terminalsInfo-vendor terminalsInfo-vendor terminalsInfo-vendor terminals
Media– electronic & printMedia– electronic & printMedia– electronic & printMedia– electronic & print
Near real-time Near real-time nationwide pricesnationwide prices
Polling done independently by CMIE & Crisil MW
28
Dematerialized holding of commodity Dematerialized holding of commodity balances balances
CLIENT DP NSDL R&T AGENT
WH
WH
WH
WH
- Open Demat a/cWith DPGets goods to the WH, fills in Demat Request form for Demat credit
Empanelled DPs in which members/clients open Demat account
-Holds commodity balances in electronic form Facilitates transactions in commodities
Link between the warehouse and the Depository. Standardized Screens
Accepts goods for storage/ deliveryAssaying done and information given to NSDL via R&T
29
Collateral managementCollateral management
Set up National Collateral Management Services Ltd. (NCMSL) Warehousing, assaying Collateral Management Commodity backed financing Food procurement for FCI
2005-06 Paddy procurement project 1.2 lakh MTs paddy from MP, Orissa
2006-07 Paddy project 80,000 farmers involved 600,000 MTs of paddy
30
Price DisseminationPrice DisseminationELECTRONIC PRINT
TV and radio News agencies Mobile phones Integrated kiosk Kisan (farmer) Call centres
Regional newspapers Training material Agri-journals
TICKER BOARDS Future plans
Member offices Mandis Bank’s rural branches Rural warehouses Bus stations Abidjan- Cote D’Ivoire Singapore- View Terminal
Rural Post offices Railway platforms Co-operative offices Panchayat offices
31
Automatic weather stations Automatic weather stations
Cabled Vantage Pro 2 Plus
Collecting & disseminating data over multiple weather parameters
32
About NCDEXAbout NCDEX
33
Our ShareholdersOur ShareholdersInstitution Share Domain Expertise
NABARD 15 % Apex bank for agricultural lending
ICICI Bank 8 % Largest private sector bank in India. Listed on NYSE
NSE 15 % Largest stock exchange in India. Highest volume in single stock futures in world.
LIC 15 % Largest life insurance company in India
CRISIL 12% India’s first & largest credit rating agency. Now a Standard & Poor company
IFFCO 12% Largest farmer cooperative with affiliation of 36,000 cooperatives
PNB 8% Large public sector bank with strong rural reach specially in North India
Canara Bank 8% Large public sector bank with strong rural reach specially in South India
Goldman Sachs
7% Global Expertise in commodity markets
34
Ncdex’ market share in total volumes of key agri-commodities (April 2006 -Jan 2007)
Cereals & Pulses
Chana\Gram 87%
Wheat 98%
Maize 99%
Barley 100%
Guar Seeds 85%
Urad 87%
Tur 91%
Processed agri-products
Guar Gum 99%
Sugar 83%
Gur 75%
Mentha oil 15%
Fiber
Medium Staple Cotton 100%
Kapas 50%
Indian 28 MM Cotton 100%
Spices
Pepper 85%
Chilli 98%
Turmeric 100%
Jeera 95%
Oil & Oil seed complex
Rape/Mustard Seed 98%
Soyabean Seeds 99%
Refined Soya Oil 27%
Soya_Meal 86%
Castor 100%
Groundnut (IN SHELL) 100%
Rape Mustard Oilcake 100%
35
Exchange ProfileExchange Profile
Number Remarks
Products 51 41 agro, 2 bullion, 2 energy and 6 metals
Members 852 Spread across India
Terminals 18,500 Accessible from 700 centres
Delivery Centres 550 All over the country
Depository Participants 59
Clearing Banks 12
Weather Stations 194 By associate company NCMSL
36
Thank YouThank You
37
Market Share – Agri. CommoditiesMarket Share – Agri. Commodities
N C D E X
M C XO t h e r
Exchange Share (%)
NCDEX 85.0
MCX 11.0
Others 4.0
100
38
Large number of Physical Deliveries taking Large number of Physical Deliveries taking place on NCDEX Platformplace on NCDEX Platform
Globally less than 2% volumes result in deliveries
Physical deliveries are incidental
Exchanges not delivery platform
However, NCDEX has seen an average delivery of 40-50,000 MT per month
Exchange’s are a platform for better prices discovery
Period Deliveries (MT)
Q4' FY05 43214
Q1 ‘FY06 109562
Q2 FY06 83081
Q3 FY06 77160
Q4 FY06 134260
Q1 FY07 103,444
Q2 FY07 125,989
Q3 FY07 94,128
Jan-Feb FY07 37,136
39
Strategic PartnersStrategic Partners
GlobalGlobalGlobalGlobal
BusinessBusinessBusinessBusiness
Warehouse & Warehouse & othersothersWarehouse & Warehouse & othersothers
Grading & Grading & StandardsStandardsGrading & Grading & StandardsStandards
Tokyo Grain Exchange (TGE)
Dalian Commodity Exchange (DCE)
Intercontinental Exchange (ICE)
Bharat Petroleum
Gas Authority of India Ltd (GAIL)
Bombay Bullion Association (BBA)
Central Institute for Research on Cotton Technology (CIRCOT)
Indian Agriculture Research Institute (IARI)
Food Corporation of India (FCI)
CRIDA
Punjab State Cooperative Supply & Marketing Federation
40
Number of contracts traded - Economic Number of contracts traded - Economic Survey Survey
Exchange / Year
2004-05 2005-06 2006-07
NCDEX 11 27.42 23.65
Others 4.3 16.3 28.38
% market share in India
71.90 63 45.45
In millions