Relaunched pepper futures contracts evoke poor response

IPSTA having very little business, while NMCE also failed to attract participants

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Re- launched pepper futures contracts at  the National Multi-Commodity Exchange [NMCE] as well as regional counter, India Pepper and Spices Trade Association [IPSTA],  has evoked  very poor response due to stringent quality measures and lack  of confidence among  the pepper fraternity. IPSTA,  without a  pan India  reach and run down software,  is having  very little business, only in a range of 25-30  tones daily. NMCE   also failed to attract participants even after a month of the re-launch.

 

Hedgers are not willing to deposit  pepper for physical delivery because of the stringent quality specifications agreed upon by  IPSTA  and NMCE with the  Forward Markets Commission [FMC] . The strict quality parameters hinder the stake holders of the business in actively trading in contract business. Arbitragers and exporters are shying away from both the exchanges and this may  pave the way for a  slow death of futures trading of pepper.

 

FMC had granted permission to re-start  the contracts in June. FMC had directed to stop futures trading in pepper in May   due to a series  of complaints over the quality of stocks maintained at  various warehouses. Because of mineral oil content in the stocks,  trade was in serious trouble,  delivery was very nominal and  FMC was forced to stop  trading.  Later   IPSTA had approached FMC for re-starting contracts with an assurance to maintain the quality of pepper and got permission.  IPSTA had started  six contracts  beginning from June onwards and  later NMCE. 

 

Experts told then  that maintenance of quality is a serious issue in the case of black pepper and 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 in the overseas markets.

 

According to a leading exporter,  the trade could not cop up with the strict quality parameters of physical  delivery agrees up on by NMCE and IPSTA with FMC. As per the specifications,  the stocks have  to be completely free from visible mouldy berries which can be attained only by steam washing and sterilizing. These are very costly affair and only a few exporters have these kind of machines which is used for their own exports.

 

Kishore Shyamji, former president, IPSTA and a leading exporter told Business Standard that the stringent quality measures disrupts business in futures trading. ‘Money power’ still rules   and controls the business to a great extend, this is not good for doing healthy business. Instead of price discovery, price manipulations occurs several times, some leading traders said.  Also  FMC has fixed a daily maximum price fluctuation of Rs 500/tone for IPSTA,  while 4 per cent price variation is allowed in NMCE.  So literally people are afraid of trading with IPSTA as the fluctuation level is limited compared to NMCE. This disparity had affected the volume of business very badly at IPSTA, Kishore  added. IPSTA has approached FMC to enhance the limit and the Commission has raised this level to Rs 1000/tone. Yet this is not implemented.

 

Giby Mathew, managing director,  Celebrus, a Commodity broking firm said that  stringent quality conditions affect  the trade very badly as it is a very costly affair to maintain such high quality. But in the long run this will be inevitable as quality is a serious concern in the overseas markets. We have to change according to the  global market requirements,  he said.

Meanwhile, the quality check of the stocks that are having mineral oil content is progressing on a slow pace as samples were tested from 2 warehouses. Stocks of 5 warehouses, where around 7000 tones of pepper is stocked,  have to be cleared.