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Suresh P. Iyengar

Sellers have to bear assaying, warehouse charges

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Mumbai Jan. 25 The fiat of the Forward Markets Commission (FMC) to delist futures trading in urad and tur and settle all open interest position in cash at Tuesday's price could hurt sellers of these commodities. With the NCDEX and MCX settling the futures contracts in cash at Tuesday's prices, sellers will have to sell their produce in the spot (probably at lower prices) to raise funds for the cash settlement with buyers. In addition, sellers delivering their commodities on the exchanges will now have to bear the assaying and warehousing charges.

Charges

Sellers of tur will have to forego the assaying charge of Rs 750 per 10 tonnes and a warehousing charge of Rs 35 per 10 tonnes per day. They had already paid these charges to the exchanges and, as of now, the amounts will not flow back. Given the NCDEX warehouse stock of 3,996 tonnes of tur, sellers have taken a hit of Rs 2.99 lakh on assaying charges and another Rs 14,000 per day as warehouse charge. Similarly, with urad stock of 2,128 tonnes in NCDEX warehouse, sellers will lose Rs 1.59 lakh as assaying charge and Rs 7,448 per day as warehouse charge.

"The sellers are worst affected by the FMC directive as they have to sell their produce in the spot market where they may not realise the same price as in the futures," said Mr Harish Galipalli, head of research, Karvy Comtrade. The turnover of urad desi futures on NCDEX has come down from Rs 3,344 crore in December to Rs 2,497 crore on Tuesday. On the contrary, turnover of tur desi futures has gone up from Rs 638 crore in December to Rs 2,526 crore on Tuesday.

Investors shaken

The ban on urad and tur futures trading has shaken investor confidence in the nascent commodity exchanges even as there were unconfirmed reports of more agro commodities like chilli, maize, wheat and guarseed being delisted.

However, the FMC chairman, Mr S. Sundareshan, assured all market participants that the delisting was applicable only to urad and tur contracts. "There are no moves to delist futures trading in any other commodity and the current directive would be restricted only to the two specified commodities," he said.

Mr Rajeev Agarwal, member, FMC, refused to comment on the reasons behind the ban, but said the exchanges would regain investor confidence.

Warning investors against spreading unwarranted rumours, the NCDEX Managing Director, Mr Ravi Kumar, said: "The market should keep away from rumours. We reassure that the Exchange would take necessary steps to ensure orderly functioning of the markets."

Only metals

Commodity investors on Wednesday were reluctant to take fresh positions in agro commodities and concentrated only on metals. "The confidence of big players and hedgers in the commodity markets has gone for a toss. It will now take an even longer time to revive the confidence. It is wrong to say that only speculators are pushing up the prices as there are other segments like big corporates and retail investors who play a vital part in price discovery," said Mr Kishore Narne, Vice-President, Anand Rathi Commodities.

Big players affected

Some players think the government should have tested other options before deciding on such harsh measures. "FMC could have considered imposing a 100 per cent margin on the buy side or lowered open interest limits before banning the two contracts. Hedgers and bigger players will be the most hit in this extreme action," said Mr Mohan Natrajan of Kotak Comtrade.

Foreseeing delivery on the exchange to be hit, Mr Atul Shah, head of research in Emkay Comtrade Ltd, said: "An investor who has taken position in the futures market for delivery on the spot market will be hit badly. While the Maharashtra government has eased the storage limit for wholesale dealers under the Essential Commodities Act on expectations of good crop this rabi, the FMC has banned futures trading."

Raising doubts over the future of commodity trading, Mr Kaushal Shah, head of research in Kaycee Commodities said, "if urad and tur can be banned, there is no guarantee that other essential commodities will not face the same future. Broking firms have invested funds in setting up infrastructure and research, hoping the business model will succeed. But now there is a big question mark".

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