MUMBAI (Commoditiescontrol) - There is a sharp fall in castor seed futures on NCDEX even today, i.e. Oct 3. Within 30 minutes of market opening, all futures contracts hit a lower circuit of 4%.
October futures even opened at a lower circuit of 3%.
In this case, the commodity exchange NCDEX is completely on the back foot. On the other hand, despite the intervention of the market regulator SEBI, the market is not able to recover. Its price has dropped more than 30% from this year's high-level.
The exchange has also had to withdraw its decision to extend its staggered delivery period, amid reports of several members defaulting last week. The sell-off continues despite a 20% cash margin on selling/short side. Now farmers' organisations are also raising questions on people related to trade, exchanges and market regulators in the wake of a consistent fall in the prices.
Market experts are assuming that castor trade has now turned from a battle of fundamentals into a battle of egos between the two factions. One group is seeing a boom in this and the other is slowing down. Nobody is second to none. Until last week, one group was selling and the other was buying. For this reason, when the price reached Rs 6000, all the equations of trade got spoiled. That too caused chaos when open interest in castor futures on the exchange reached a record level of 3.15 lakh tonnes, while it had barely 1.5 lakh tonnes of stock in the exchange's recognised warehouses.
The question is that in a market where both buyers and sellers do not know each other and the trade is for the purpose of hedging and price discovery how is factionalism possible? Some members of NCDEX believe that the country produces annually an average of 1.5 million tonnes of castor. Of that, 90% of the produce comes from only one state, Gujarat.
Trade data is not readily available, in such a small commodity, who is promised to benefit? Anyway, this is promised only in India. In the same way the regulation is only in the future, any group or individual trader in the spot can corner the market and influence the market.
However, G Chandrasekhar, former Commodity Editor of The Hindu BusinessLine, believes, "India has a monopoly in the global castor oil market. India accounts for 90% of the total castor oil exports in the world. That's why castor trade in India is very old”. Castor used to have forward trading even before the current online future trading. But the older the trade is, the longer the controversy.
G. Chandrasekhar says, "There was a lot of speculation on it even when there was forward trading on the Bombay Oil Seed Exchange". He explained, "It was banned for the first time in 1966 because of speculation. But in 1998, its trading was allowed again". But it is worth noting that even in the new full-proof system, castor futures have been banned in January 2016, which was reintroduced a year later. At that time too, the reason was attributed to the sudden fall in prices.
Castor is an industrial commodity which is used in the lubricant, grease, paint and personal care industries. India is the largest producer of castor oil in the world and China the largest importer. That is, the commodity is small, but its market is very large. However, the figures regarding its production, exports and stock are not readily available. Most of the markets run on the figures given by the trade organisations.
G. Chandrasekhar believes that "in fact online trading is not worth it". Apart from production figures, exports and exchanges, information about stock lying in the warehouse is not readily available. Even if it is available, there is a crisis of transparency that is why it creates problems. This type of problem is not just in castor but is has also been visible in guar, turmeric, coriander, cumin and mentha oil. These are commodities that are limited to 2-3 states, but are the major volume generators on the exchange platform. The question is, "Are commodity exchanges trading them only for volume"? Because more farmers and industries are interested in large commodities like wheat, paddy and sugar, yet they are not in the focus of commodity exchanges.
In response, G. Chandrasekhar says, "Actually trade is not free in India, wheat, rice and sugar are larger commodities, but there is a huge interference of the government". The government decides the quota for how much sugar will be sold in a month. It also lacks parity with the global benchmark because of subsidies and sugarcane prices. FCI has a large stock of wheat and rice. In such a situation, who would be interested in their trading?
Traders believe that due to government intervention, they do not have much volatility in these larger commodities, so trading in them is not beneficial.
A research analyst at a large brokerage house believes, "As the availability of sufficient commodity data is a growing crisis, SEBI should think seriously in this direction. The way all information about companies listed on the stock market is comfortable. Is not available in a commodity like castor”. How can you make futures in it only by margin and contract specification, while there are only rumours in the name of fundamentals?
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