The Hindu Business Line : 'Rise in guar seed prices not alarming'

THE National Commodity and Derivatives Exchange Ltd (NCDEX) has clarified that there has been a shift in trading from unofficial markets to NCDEX over the last couple of months, leading to rise in volumes, according to a release.

Volumes on NCDEX have risen to Rs 2,479 crore (turnover of Rs 4,958 crore) on September 9, 2004 (over 91,000 trades transacted) and have also consistently risen during the week.

The major contributors to this increase in volume are: guar seed (Rs 1,728 crore), chana (Rs 160 crore), silver (Rs 82 crore), soy oil (Rs 23 crore), gold (Rs 23 crore), castor seed (Rs 15 crore), wheat (Rs 19 crore) and guar gum (Rs 372 crore).

Around 80 per cent of the volumes have been coming from agricultural commodities in the last month or so.

Even though forward/futures trading in commodities had been banned during the last 40 years, informal/illegal trading continued. This is an important factor to note because guar has been one of the commodities where trading has traditionally been carried out in the unorganised markets, a release said.

The Exchange has observed that among other commodities, guar seed has registered high volumes. Around 70 per cent of guar seed is produced in Rajasthan which has witnessed a mixed to indifferent monsoon so far which has resulted in price fluctuation.

Open interest has been above one-lakh tonnes spread over several participants, which indicates genuine trading interest in the commodity. Further, the number of members and client participation has been very high centre-wise and member-wise, and also geographically well dispersed. Trade participants in guar seed come from over 100 locations spread across the country and number well over 1,400. Also, many are day traders squaring off their positions by the end of the day, which have added to the volumes.

The average spot (mandi) price of guar seed this year during August-September has been Rs 1,463 per tonne as against Rs 934 per tonne during the same period last year. This was essentially due to an unfavourable monsoon.

The average price of guar seed was Rs 1,300, Rs 761 and Rs 1,554 in 2000, 2001 and 2002 respectively. In fact, if the 2000 price were adjusted for inflation as denoted by the WPI, during the period 2000-2004, which was around 29 per cent, the price would have been higher at around Rs 1,677 in 2004. Therefore, the price increase is certainly not alarming, according to NCDEX.

The exchange already has comprehensive risk and surveillance controls in place to monitor price movements in the market.

These risk measures ensure a limit over the impact or influence that a single member can have on the entire volume traded in any commodity. A member attempting to trade beyond a level permitted by his effective deposits with the Exchange automatically gets disabled.

Also the level of margins for each commodity is based on price volatility which is calculated by a Value at Risk model and varies continuously even during the day. The Exchange has set minimum margins based on this model for every commodity and any intra day price volatility automatically gets reflected in the margins.

In case of guar seed, the minimum margin is 6 per cent and due to price volatility, the margin during September actually varied between 12-15 per cent.

Therefore, while the trading levels in guar seed have risen in the current month, the trades are well dispersed across members, clients and locations and there is neither any cause for concern nor any evidence of one or more individuals acting in concert to influence price levels.