Black pepper trading gains pace after NMCE restarts contracts

Contract trading in black pepper has again become active after the National Multi-Commodity Exchange (NMCE) was granted permission to restart contracts. A couple of weeks earlier, the Forward Markets Commission (FMC) had granted permission to India Pepper and Spice Trade Association (IPSTA), a Kochi-based regional exchange, to restart the contracts.

All stakeholders, including exporters, traders and growers, have welcomed the move, since it would give momentum to the pepper business. FMC had ordered a stop on futures trading in pepper with the 2013 May contract after getting a series of complaints over the quality of stocks in various warehouses. Because of mineral oil content in the stocks, the trade was in serious trouble and delivery was nominal. FMC was forced to stop the trading then. India's business abroad was also affected due to reports of poor quality.

Meanwhile, IPSTA had approached FMC for restarting contracts with an assurance to maintain the quality and received permission. IPSTA had started six contracts beginning this month. In today's trading, the June contract moved on a steady note at Rs 35,800 a quintal. Quotes at NMCE moved on a narrow range at Rs 35,900 (July) and Rs 36,500 (August).

The volume of trading is rather low currently. In the global market, the tariffs of India, Indonesia and Vietnam are almost at par, at $6,350 a tonne for the Asta grade.

The Multi Commodity Exchange (MCX) would also get permission as soon as the exchange approaches FMC, sources told Business Standard. It is known that the National Commodity and Derivatives Exchange will follow. To overcome the quality issue, NMCE will form an independent team of experts, consisting of its own officials and representatives from the Spices Board and the Central Warehousing Corp (CWC), for periodical checks of the quality of pepper in warehouses.

This team will report on a regular basis and guide warehouse managers and staff.

Experts said maintenance of quality is a serious issue in the case of black pepper. If exchanges can ensure the quality and keep it mineral oil-free, that would be beneficial for the industry in general and good for the credibility of Indian pepper abroad.

Giby Mathew, managing director, Celebrus, a commodity broking firm, said the industry was lacking a hedging platform since pepper contracts came to a standstill. This is a welcome move which will help domestic traders and exporters.

C P Krishnan, director, Geojit Comtrade, also welcomed the step, saying growers and traders would get a much needed hedging platform. A Kochi-based exporter told Business Standard: "Let's hope for the best. The quality issue was fabricated by a section of big business houses since they piled up huge stocks. The restart of contracts is a welcome step but the market is not on a realistic plane, compared with the global trend. This had affected India's export trade very badly."

NMCE has launched the modified pepper contracts from Monday. In a press statement, the exchange said in the new contracts, pepper would be free from mineral oil. Six contracts from July to December have been launched. CWC would accept the delivery at different centres. With the base centre at Kochi, the other delivery points are Kottayam, Kozhikode, Vandanmedu (Idukki district) and Thrissur.