NCDEX plans gold contract on price hedge as delivery is tough

We want 20-30% of trade to come from non-agricultural items in the next 2-3 years: NCDEX chief

Commodity bourse NCDEX has moved a proposal with sectoral regulator FMC for launching a new gold contract focusing on price hedging as it feels delivery is not practical due to curbs on imports of the metal.

 NCDEX, which has pioneered a number of agri-contracts, now aims to expand to bullion and metals.

"We want 20-30% of trade to come from non-agricultural items in the next 2-3 years. We are working on new products. We have submitted a proposal to FMC for launch of a new gold contract focusing on price hedging and not delivery," NCDEX Managing Director In-charge Samir Shah told reporters here.

When asked why the bourse is not planning a delivery option to traders under the new gold contract, Shah said, "Delivery of gold after the settlement of the trade on the exchange is not practical in the current environment due to import restrictions on gold."

"In such a situation, if you focus on delivery-based gold contracts, you might have the delivery of indirectly channeled gold on the exchange platform and create price disparity. There is a genuine problem," he said.

The NCDEX chief added that gold delivery has come down even on MCX, which has the maximum participation in bullion and metal trade.

"Gold delivery has come down on MCX. We never had liquidity in our gold contracts. Even if we had, we too would have seen delivery not happening," he said.

To contain current account deficit, the government has taken several measures to curb imports. Traders are mandated to export 20% of the imported gold with some value addition. Import duty has been raised to 10%, while shipment of gold bars and coins have been banned.

India, the world's largest consumer of gold, imported 393.68 tonnes of the yellow metal during the April-September period of this year, as per official data.

Way back in March 2005, NCDEX was first in the world to launch futures contract in steel. However, the contract had to be discontinued after the government's body Bureau of Indian Standards (BIS) mandated steel quality norms last year.

"We have revised our steel long contract with the BIS specifications. We are launching now total four contracts -- December, January, February and March," NCDEX Managing Director In-charge Samir Shah said at the launch ceremony.

As per the NCDEX' new steel contract, futures trading is allowed in steel long having BIS 2830 grade quality. The delivery is compulsory from seven centres -- Mandi Gobindgag, Ghaiziabad, Mumbai, Raipur, Hyderabad, Jaipur and Kolkata, he

The contract provides flexibility for settlement of the trade either through direct delivery or from the approved warehouses of the bourse, he said, adding that the prices under the contract would be discovered locally.

Currently, the country manufactures 36 million tonnes of steel long. The exchange expects trading of atleast one% of the total output on its platform by next year, thereby improving its total trading volumes.

Unvieling the new contract, JSW Steel Ltd Joint Managing Director and Group CFO Seshagiri Rao said: "The steel futures introduced by NCDEX will help all stakeholders in the industry. We will be happy to use this platform for price discovery and hedging."

There is a huge scope for industry to benefit from this futures trading platform as the government aims to raise the country's steel production to 300 million tonnes in the years come. Presently, India produces 80-90 million tonnes, against the capacity of 100 million tonnes, he added.

Echoing views, JSPL Steel Deputy Managing Director and CEO V R Sharma said that such a platform was very essential for the industry for discovering the right price.

NCDEX is the second biggest commodity bourse in the country after MCX. It mainly offers futures trading in agricultural commodities. It is now expanding in other non-agricultural commodities.