NCDEX plans to launch coffee futures trading by the end of June

Coffee beans

With plans to launch coffee and PVC (polyvinyl chloride) futures, the National Commodities and Derivatives Exchange (NCDEX), the nation’s largest agricultural commodity exchange, is making a comeback.

This is part of its plan to introduce new contracts in non-price sensitive commodities. According to Arun Raste, Managing Director of NCDEX, the exchange also plans to introduce a Liquidity Enhancement Program (LES) in steel, which is considered market making.

The Securities and Exchange Board of India (SEBI) has given the exchange permission to launch the LES in steel.

Last year, the Sebi imposed a one-year suspension of futures contracts on seven commodities: non-basmati rice, wheat, green gram, soybean and its derivatives, rapeseed-mustard complex, crude palm oil and chana. . The NCDEX dominated the trade in soybeans, rapeseed/mustard complex and chana among these products.

The sudden ban on futures trading of some agricultural commodities was ‘of course unfortunate’, but Raste told Business Line it was ‘not the end of the road’ as Sebi approved 90 commodities for trading ultimately as long as value chain participants benefit. .

We did a thorough investigation and were surprised to find that coffee has a 30% market share in hot brew beverages. “Many big brands are vying for a prime position in the coffee market,” he said.

The exchange plans to begin trading coffee futures in the first quarter of this fiscal year while also working on an LES for steel, according to Raste, a former member of the National Dairy Development Board with extensive experience in agriculture and related fields.

This is not the first time coffee futures have been introduced. Coffee was one of the first commodities to be traded in futures, with the establishment of the Coffee Futures Exchange of India in 1997.

However, due to low grower participation, the trade did not take off as expected and had to be shut down after a few years. Coffee futures contracts were introduced by the National Multi Commodity Exchange (NMCE) in 2005, and NCDEX competitor Multi Commodity Exchange followed suit in 2007. Both futures contracts, however, had to be canceled in due to insufficient interest.

India exports two thirds of its coffee production and is the third largest producer and exporter in Asia. It is the sixth largest producer and the fifth largest exporter of coffee.

It is mainly grown in Karnataka, Kerala and Tamil Nadu, with some exceptions in Andhra Pradesh and the northeast. Indian coffee is exported to countries such as the United States, Italy, Germany, Belgium, Jordan, and Russia, among others.

PVC is another area where the exchange is working closely with the industry and expects its plans to be ready soon. According to Raste, many big brands are involved in the PVC (polyvinyl chloride) value chain, with many export opportunities.

Following the banning of seven commodities last year, Raste said the exchange prefers to focus on non-price-sensitive commodities as it has been proven beyond doubt that futures trading does not contribute to the upside. prices. It only transmits signals about future price trends.

The exchange is still in contact with farmers in soybean and MR producing villages, and once trade restrictions on these products are lifted, the exchange will list them for trading. “It is well established that once an exchange piques the interest of investors and traders in a particular product, they do not move to another exchange,” said the CEO of NCDEX.

First published: May 13, 2022, 09:28 IST

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