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Ace's cotton contracts to help save transportation costs

Traders may save 2-3% of transaction cost which normally is spent on quality and quantity checks, Ace to bear the cost

BS Reporter  |  Mumbai 

In the past month, the turnover from cotton contracts on Kotak-anchored Ace Derivatives and Commodity Exchange (Ace) jumped significantly, owing to traders' interest in saving transportation costs, which affect the delivery of bulk commodities such as natural fibre.

In October 2012, the exchange had launched new cotton contracts that helped save two-three per cent of transportation costs. Usually, expenses on transportation and quality checks at a delivery centre are borne by the depositor of goods. These stand at two-three per cent of the price of the commodity.

“The most important thing is the local nature. We are identifying delivery takers and givers in the same location and facilitating the process, which reduces the unnecessary cost of transportation,” said Dilip Bhatia, chief executive of Ace. “This, however, is not mandatory for all executed contracts in all locations. The facility depends on the quantity available in the same location.”

Meanwhile, the daily average turnover for cotton contracts ended July 15 stood at Rs 34 crore, rising to Rs 52 crore after the expiry of the contract. The launch of new contracts, with added features and cost savings for deliverable quantity, has attracted wide participation. So far this month, the first such contract for delivery in October saw a rise of 68 per cent. From Rs 23 crore on July 1, the exchange's turnover for October contracts surged to Rs 39 crore on July 18. Contracts for delivery in November recorded a staggering rise of 375 per cent---from Rs 3 crore to Rs 14.81 crore.

“On widening participation of traders, the facility to transform physical to futures would be extended to other agricultural commodities as well,” Bhatia said.

First Published: Fri, July 19 2013. 23:12 IST