Oil and Oilseeds

In the category of oil, the following are the prime listed in the commodities market and are traded on a regular basis. Following that is a profile on some of them.
-Castor Oil
Coconut Oil
-Crude Palm Oil
-Groundnut Oil
-Mustard or Rapeseed Oil
-Soy Oil
-Refined Sunflower Oil
-Rice Bran Refined Oil

Castor Oil
Castor oil is commonly is utilized in the form of a raw material to manufacture chemicals that are used in the following:
-Surfactants
-Soaps
-Surface coatings
-Cosmetics
-Personal care products
-Pharmaceuticals
-Perfumes
-Greases
-Lubricants
-Rubber

India is considered the leading castor oil manufacturing nation in the world. The Indian castor plantation yields up to 48 per cent oil, and its annual production varies between 2.5-3.5 Lakh tons. The estimated yearly consumption of castor oil in the country itself amounts to about 80,000-1,00,000 tons. The country is said to exports approximately 2.0 – 2.4 Lakh tons of castor oil, annually.

Mustard or Rapeseed Oil
According to estimates the country produces approximately 1-2 Million tons of mustard or rapeseed oil. In fact, in this type of oil and oilseeds India seems to be comfortably seated in the areas of self-sufficiency. It neither imports, nor exports this oil. However, the production of this oil varies according to the weather conditions.

Soy Oil
India is known to produce approximately1 Million ton of soy oil, annually. However, to meet its demand requirements the nation imports approximately 1.5 Million tons of this oil. The price fluctuations of soy oil are highly volatile and are largely dependent on the global trends.

In the commodities market, usually oil and oilseeds are clubbed together. For this reason, here is a list of the oilseeds that are listed for commodity trading, followed by a profile of some of them.

The essential oilseeds listed are:
-Castor Seeds
-Cottonseed
-Mustard Seed (Sirsa)
-Sesame Seed
-Soy Seeds

Castor Seeds
Apart from castor oil production, the country also heads the list in global producers. The nation produces an approximate of 6 to 9 Lakh tons of castor seeds, annually. It said to export about 50,000 – 60,000 tons of castor seed extractions and in the range of 15,000 – 20,000 tons of castor seed, per annum.

Cottonseed
Amongst all the oilseeds produced in India, cottonseed is considered the oldest and most traditional According to the experts approximately 80 per cent of the cottonseed is surplus production, after being used to make the cotton bales, and is crushed to make oil. The 20 per cent that remains is used cattle fodder

Gold Bullion

Gold is regarded as one of the essentials that measure one’s wealth, in India. In fact, one may not be cash-rich, but in some form or the other gold is stacked somewhere. Through centuries owning gold has been a matter of pride and enhancing one’s self respect. Till date in the rural regions of India, one’s wealth is measured in terms of the gold and jewels one has been able to invest in. This tradition carries forth today in the form of bullion trading.

Bullion is defined as gold or silver, as well as other precious metals that are in the solid form being a biscuit, slab or coins. Gold is considered a primary asset with high appreciation value and ready convertibility at any given point. In India, marriages are fixed in accordance to the gold the bride takes to her in-laws home.

People from every stature of Indian society invest in bullion. They prefer this over property as in times of a crisis it is not all that simple to convert property to liquid cash, but the bullion can be sold within a couple of hours, and the recipient would be cash-rich, almost instantly.

There are various factors that contribute to the variability of bullion rates, amongst them the prime being:

Stock equilibrium, implying the amount that is stocked up

-The flow equilibrium, which means the amount that is flowing in the economy, or the volume of bullion

India is ranked as the largest bullion consumer in the world. It records an approximate annual demand of 800 tons.

 

The following are some of the major bullion exchanges in the India:

-Multi Commodity Exchange of India Limited: 102 A, Landmark, Suren Road, Chakala, Andheri (East), Mumbai. Tel: 022 66494000; Fax: 022 66494151

-National Commodity & Derivatives Exchange Limited: Exchange Plaza, C- 1, Block G, Bandra (East), Mumbai. Tel: 91-22-5640 6789; Fax: 91-22-5640 6899

Contact India Commodities (P) Limited: 27 J, Zamrudpur, Kailash Colony Extension, New Delhi. Tel: 91 11 26296606-10, Fax: 91 11 26296607

-MMTC Limited: Core – 1 SCOPE Complex, 7 Institutional Area, Lodi Road, New Delhi. Tel: 24362200; Fax: 24360724

Online Commodity Broker

The online commodity broker is one who takes all commodity trading orders via the internet and conducts them in accordance. They are also the online commodity traders or trading firms. They are also popularly known as online commodity brokerage firms.

To register with an online broker one needs to go through the following steps:
-Fill the online form
-Pay the minimum deposit required to begin trading
-Pay for additional services required
-Install the software
-Undergo training to correctly use the software
-Renew online trading membership as per time line set
Apart from all this, the brokerage firm usually sends one of their executives to verify details provided online. The executives also install the corresponding software and train the end user in making trades. In fact, they carry out a mock trading session to ensure that no error could occur when trading actually begins.

There are a number of online commodity brokers, who set up website with alluring terms and conditions for trading. They accept all payments and within a couple of months they shut shop with all the money.

Gone with no trace left behind! Also, there are online trading scams that happen whereby scamsters send alluring mail inviting people to enroll with a so-called online commodity broker. They get hold of your bank account, and credit card information only to empty your account completely.

It is vital that when enrolling with an online commodity broker one does some homework on the so-called broker and when completely convinced then only sign and pay up for trading.

Fibre

In the commodity exchange when one refers to fibre, cotton is what they imply. India is considered the largest global producer of cotton fibre, which is not only consumed locally, but also exported around the world. The cotton fibre is processed into cotton yarn. The country generates a varying range of counts, which is the measure of cotton yarn in terms of its linear density; being a variation of 2 to 120 counts.

After cereals, the textile and clothing industry seems to hold a prominent place in the Indian economy. This includes:
-Manufacturing and production
-Foreign exchange revenue
-Employment provision

In the year 2005, the fibre market in India is known to have generated an approximate revenue of Rs. 35,000-Crore, as a result of the 3100 Million kilos of yarn it produced that year. Of this the cotton yarn held 69 per cent of the market share and the mixed cotton yarn held 19 per cent of the market share value. 12 per cent was accounted for by the non-cotton fibre sector.

The country holds 17 per cent of the world’s share in cotton fibre export. The receiving nations primarily being China, Korea, Bangladesh, Egypt, Taiwan, Hong Kong, Mauritius, Japan, Israel, European Union and Turkey.

There are varied factors that determine the price fluctuations in cotton fibre. These include:
-Demand for export
-Fluctuation in the rate of the Dollar and other currencies
-Global production
-Global consumption requirement
-Stock trading fluctuations
-Weather conditions
-Seasonal cycle

Derivatives Market

In India derivative trading may happen either on a separate and independent Derivative Exchange or then on a separate segment of an existing Stock Exchange. Essentially the derivative exchange or derivative segment operate as a Self-Regulatory Organization (SRO). SEBI performs as the oversight regulator.

All clearings and settlements of trades that happen on the derivative exchange or segment have to be done through a clearing corporation that has an independent administration, as well as membership from the derivative exchange or segment.

The regulatory framework of the derivatives markets in this country is the Securities Contract (Regulation) Act, 1956; and the Securities and Exchange Board of India Act, 1992.

The basic regulatory framework for the derivatives market functioning in India was formulated by the Dr. L.C Gupta Committee, which was constituted by SEBI. SEBI is responsible for the following:
• This regulatory body created the suggestive bye-law for the derivative exchanges or Segments, along with their respective clearing corporation.
• It laid down the rules, bye-laws and regulations for the derivatives market
• This regulatory body also prescribed the conditions of eligibility into in the derivatives market
• It provided the facilities to deal with investor grievances.

There are varied types of membership in the derivatives market. These a enumerated as follows:

• The trading member is one who can trade for himself and on behalf of his clients
• The clearing member are those who have agreed to settle all trades that happen through them.
• The self-clearing member are those who are limited to only clearing their own trades.

COMMODITIES.IN – DISCLAIMERS

RISK DISCLAIMER

Trading or investing in commodities is a High risk activity. Any action you choose to take in the markets is totally your own responsibility. Any person acting on information in this research material does so at its own risk, and is also referred to the disclaimer displayed on this web-site. Past performance will not necessarily be repeated in the future.  Commodities.in will not be liable for any, direct or indirect, consequential or incidental damages or loss arising out of the use of this information.

These market studies are strictly the opinion of the writers and are intended solely for general informative purposes and are not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities herein named. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Commodity trading and Futures trading involve substantial risk. In no event should any content of this site be construed as a promise that you will profit or that losses can or will be limited in any manner whatsoever. The Users /Visitors have to make their own decisions based on their own independent enquiries, appraisals, judgements , wisdom and risks. The contents of website shall not be considered as invitation or persuasion to trade or invest.

 

Research Disclaimer
We
do not represent or guarantee the accuracy or completeness or updating of the Information even though we make efforts to ensure that the information and recommendations provided as part of this website are correct at the time of inclusion on the web site. Information provided on this website is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. This research was compiled for the purpose of general information undertaken by Commodites.in and for the distribution to general public as an information service. It does not constitute a solicitation for the purchase or sale of any commodity, security, investment or product, nor does it constitute advice to users of the web-site.
REPRODUCTION OR REPRINT OF ANY PORTION OF THIS INFORMATION IS STRICTLY PROHIBITED WITHOUT THE WRITTEN PERMISSION OF COMMODITIES.IN

The contents are copyright© 2006, Commodities.in. All Rights Reserved.

Derivatives

The term derivative in the financial market indicates something that has no individual value, but it value is completely derived from the value of the asset. The asset in this case maybe, amongst the following and more:
• Securities
• Commodities
• Bullion
• Currency
• Livestock
Thus, derivative implies any of the following:
• Forward
• Future
• Option
• Other hybrid contracts
These contracts would have the following common factors:
• Pre determined fixed time span
• Linking to the value of a specific real or financial asset; alternatively to an index of the securities.

Thus, essentially derivatives are financial instruments that draw their value from another financial price. The other financial price is termed as the underlying.

Take for instance, a farmer may want to enter a contract to sell his rice harvest on a future date, so as to curtail the risk of price fluctuations that may occur in the interim period – present to specified date. In such a situation the rate for such a contract will depend on the current spot price of rice.

This type of a transaction can occur in a rice forward market. In such a case the rice forward is the derivative, and rice on the spot market is the underlying. The most vital derivatives are futures and options.

Future Contracts

A futures contract is one wherein all the pointers of the forward contract are common, except for the price and can be traded. The price being the only variable is a representative of the anticipated future value of the asset at hand. This is why this type of contract is given the title of being a futures contract.

Another technical term for the futures contract is standardized forward contract. Standardization of the contract facilitates trading, as well as leads to a reduction in the costs of transaction.

In practice a futures contract carries the terms and conditions to both the party to carry forward the transaction to the next date, or dates as mentioned in the contract. The party whose equity account is less than the specified amount pays the difference, which is technically termed as variation margin. Thus, by the end of the trading those involved in the contract step into a fresh forward contract. This will have the same maturity date that was printed in the original contract, but giving a revised forward price. This process is known ‘marking to market’. Herein the clearing house replaces each futures contract that exists presently with a new one.

An example of this transaction would be the buyer X and the seller Y step into a 1,000 ton sugar futures contract at the rate of Rs. 10 per ton. Then taking into assumption that on the next day of this the settlement price of sugar is Rs. 10.20 per ton. Then this price fluctuation would lead to a Rs. 1,000 loss to Y, while X earns a profit of the same amount.

The settlement price is considered as the representative price. This particular price is the rate at which the contracts trade in the closing time of the trading time span.

To sum up, the futures contract can also be considered as a roll over forward contract. As pre technical definition of the futures contract it is: A standardized agreement between the buyer and the seller, wherein the seller is obligated to deliver a precise asset to the buyer on the precise date (as stated in the contract); and the buyer is obligated to pay the seller the prevailing futures price on delivery of the asset.

The futures contract consists of the following pointers:
• The date on which the contract is to be executed
• the asset of which the contract is a derivative
• The asset’s quantity
• The price of the contract price

Commodity Trading System

Gone are the days of a loud cacophony of price announcing commodity trading. In those days the commodity trading system was so tardy that traders would have sleepless nights wondering whether their trades had been recorded or not. This is because in place of the computer systems there would be a group of people seated around, taking orders and passing on the order sheets to other levels.

The traders would be in center calling out bids. The amazing fact is that in spite of such functioning each one involved in the commodity trading process had and eye for precision. A major falter was unheard of. But between then and now; between the ban and lifting of the ban things have changed radically.

Today, where commodity trading system is concerned, first and foremost it is all computerized. Traders need not visit a commodity trading market to speculate. With on line commodity trading they could sit in the confines of their home or office and call the shots. This is much organization in the commodity trading, at present.

The commodity trading system consists of certain prescribed steps or stages that enumerated here, as follows:

I. Trading: At this stage the following is the system implemented –
-Order receiving
-Execution
-Matching
-Reporting
-Surveillance
-Price limits
-Position limits

II. Clearing: This stage has the following system in place –
-Matching
-Registering
-Clearing
-Clearing limits
-Notation
-Margining
-Price limits
-Position limits
-Clearing house

III. Settlement: At this stage the system followed is as given here:
Marking-to-market
Receipts and payments
Reporting
Delivery upon expiration or maturity

The Exchange Central System for commodity trading is situated in Mumbai. This takes care of the Central Order Book. The traders across the country are connected to this central system via VSAT, as well as other modes of communication approved by the Exchange. The traders place their orders via the Traders Work Station (TWS), which is linked to the Exchange. If the trading request matches with the flash on the Central System then a trade confirmation is sent back to the trader.

Commodity Trading Course

There are various institutes that conduct commodity trading courses in India. This is generally a short term course, encompassing a number of topics to make the students conversant with all technical aspects of commodity trading.

To many, commodity training may seem like something new, as most people are aware of only stock trading. But the fact is that this type of trading has its roots fixed way back in the 19th century Asian rice trading and American futures markets.

However, in India commodity training suddenly saw a major upswing, and what many experts consider a revival, in the year 2003. This was caused by the steep inflation and investors realized the importance of the ancient trading methods.

At that point however it was gold and oil futures that dominated the scene. Since then in the last coupe of years an increasing number of people have tilted towards gaining knowledge and trading in commodities.

Commonly all institutes conducting the commodity trading course organize a program that spans for a fortnight. The students are provided with all technical knowledge and are usually made to create and manage a mock commodity trading portfolio based on actual trends in the market. This will determine their grasp over the subject.

The course generally comprises of the following modules:
-The range of commodities
-Exchanges
-Regulations and laws
-Commodity pricing
-Factors that dominate fluctuations in the commodity market
-Utility of commodity futures
-Implications of sales tax
-Understanding derivatives with application
-Trading strategies to manage risk
-Trading procedures that includes
-Clearing
-Settlement
-Delivery