NCDEX launches three polymer contracts

The domestic polymers market was directly linked to the international market and all stakeholders should know the prevailing global prices and the comparative prices in the domestic market.

A risk-hedging platform was the need of the hour and it had been fulfilled, thanks to the National Commodity & Derivatives Exchange (NCDEX), said Mukesh Ambani, chairman of Reliance Industries, at the launch of polymers futures on the NCDEX on Monday.

The NCDEX launched three polymer products, namely, polypropylene (PP), linear low density polyethylene (LLDPE) and polyvinyl chloride (PVC) for May, June and July delivery on Monday. The domestic markets for polypropylene, LLDPE and PVC are worth Rs 4,100 crore, Rs 2,500 crore and Rs 8,000 crore, respectively.

The contracts are based on compulsory delivery at ex-Bhiwandi prices, while the delivery from Delhi warehouses will command a premium.

According to an NCDEX official, the circuit limit has been fixed at 4 per cent, with a 15-minute cooling period when the limit is breached. A further movement of 2 per cent in the same direction would also be permitted. But, if the price hits this barrier, trade would then be stopped for the day. The exchange has fixed an initial margin of 2.5 per cent and exposure margin of 3 per cent. The contracts will be traded in a lot size of 3 tonne, with the prices quoted in rupees per kg with a tick size of 10 paise.

The domestic per capita consumption of polymers is currently 4 kg and is set to double in the next 5 to 6 years due to its varied applications. The domestic per capita consumption of polymers is low compared with the world average of 25 kg.

By virtue of its physical and chemical properties, polymers are used in every walk of life. The automotive industry uses substantial quantity of plastics to make cars light and fuel-efficient.

"We fiercely believe that the NCDEX has chosen the right time to commence futures in three polymer products, which are becoming popular in day-to-day use in the country because of their natural integration with the global market," said Ambani, adding that Reliance Industries believed in an open market since the beginning, when Dhirubhai Ambani used to procure yarn from the open, outcry Tambawalla market in Gujarat.

On Reliance Industries' plans to hedge risk on the NCDEX, Ambani said all would work together for the benefit of consumers.

Supporting Ambani's views, K V Kamath, chairman and managing director of ICICI Bank said the polymers market was growing fast and was fiercely competitive. The launch of polymer products on the NCDEX would provide the domestic traders a platform to hedge risk for millions of tonnes of transaction conducted on the spot market.

Polymer producers, processors and traders are currently highly vulnerable to volatility in raw material prices and have very little bargaining power against suppliers. The NCDEX platform provides them an opportunity to hedge risks.