MCX set to kick off ATF futures next week

Traders and consumers of ATF (a higher derivative of crude oil) have been badly hit by high prices and supply uncertainty. There was an urgent need for the aviation and oil industries to keep their hedging activity intact for assured supplies.

According to sources, the exchange has fixed the trading unit at a minimum of 100 barrels and a maximum order size of 10,000 barrels, with a tick value of Re 1.

The country is seeing a major spurt in air traffic, both domestic and international. As a result, there has been a steady rise in fuel demand and refiners need an assured supply to cater to the growing demand.

According to initial indications, Bharat Petroleum Corporation, Hindustan Petroleum Corporation, Indian Oil Corporation, Air India (National Aviation Company of India), Go Airlines and Jet Airways have shown interest in hedging on MCX.

The lauch of ATF futures will take care of supply fears through deliverable contracts and benchmark prices for users to have a better negotiating capacity in the global market, an analyst said.

India has an estimated ATF processing capacity of 78.05 lakh tonnes. Oil companies decide ATF prices keeping a tab on international crude oil prices. ATF sales accounted for about 3.5 per cent of the total sales of petroleum products in the country.

ATF accounts for around 40 per cent of an airline's input costs. Air-India's fuel budget for 2004-05 rose to Rs 2,100 crore from Rs 1,339.75 crore in 2003-04, thanks mainly to an increase in ATF prices.

International ATF prices rose from $46 a barrel in January 2005 to $122 in May 2008. Consumption of ATF has increased by almost 77 per cent in 2006-07 compared with 2000-01.

In the absence of a domestic hedging platform, oil companies were using international platforms.

However, some analysts are keeping their fingers crossed on the success of ATF futures as the number of potential participants is difficult to estimate.