NCDEX launches trading in polymer futures

Mumbai: The National Commodity & Derivatives Exchange Ltd (NCDEX) has launched trading in futures contract in polymers to help market participants'' - producers, processors, and distributors/ traders - hedge against volatility in prices. Trading has commenced in three polymer products - Polypropylene (PP), Linear Low Density Polyethylene (LLDPE) and Polyvinyl Chloride (PVC).

Mukesh D. Ambani, chairman and managing director of Reliance Industries Ltd (RIL), India''s largest private sector company, rang the opening bell in the presence of top NCDEX officials PH Ravikumar, MD & CEO, and Narendra Gupta, chief of strategy, to mark the opening of trading in the contract.

The contract, among other things, seeks to address concerns arising out of extreme volatility in prices, inconsistent input price correlation, and lack of a suitable derivative instrument to support risk management (hedging) in the plastics industry.

The unit of trading as well as the delivery unit for the polymer futures contract is 3 metric tons. The delivery centre and additional delivery centre for the contract is at NCDEX accredited warehouses at Bhiwandi and Delhi respectively.

Exchange approved local and imported grades can be delivered at these delivery centres at par. Daily price fluctuation limit for the contract has been set at 6 per cent. Position limit for members and individual clients has been set at 20,000 metric tons and 5,000 metric tons respectively.

The prevalent spot prices of polymer products as specified in the futures contract is derived through a polling process, whereby the exchange randomly calls up 20 market participants from a panel of 40 participants for the spot prices twice a day. The prices are then subjected to a ''bootstrapping'' process (a scientific process for removing prices that are too far away from the mean) and averaging the remaining prices.

"Currently polymer producers, processors, and distributors/ traders are highly vulnerable to volatility in raw material prices and have very little bargaining power against suppliers. We have launched the polymer futures contract to alleviate this situation. Trading on our exchange will not only lead to better price discovery but also help market participants mitigate risks arising out of price volatility," said PH Ravikumar, MD & CEO, NCDEX.

That there is a demand-supply gap in polymers is underscored by the fact that in 2005-06, the production capacity of polymers was about 5 million metric tons per annum (MMTA) while the demand was around 5.6 MMTA.

PP is used for the manufacture of woven sacks, furniture and household products, packaging films, etc; LLDPE is used for manufacturing water tanks, shopping bags, etc; and PVC is used for manufacturing plumbing/conduit fixtures, window profiles, bean bags, shoe soles, pipes, electrical wires & cables, etc, there is scope for consumption growth in polymers.

The per capita consumption of polymers in India at 4.2 kg is way below the global average of 25 kg.

NCDEX is the premier commodity exchange in India that provides a world-class online trading platform for market participants to trade in a wide range of commodities. With over 800 members around 550 centers and over 8,076 trading terminals, daily volumes (one sided) on NCDEX averaged about Rs3,800 crore in FY 06-07. In size, it ranks first in India and accounts for about 50 per cent of the volumes traded on the exchange in India.

NCDEX has emerged as the world''s third largest agricultural exchange as per the Geneva-based United Nations Conference on Trade and Development (UNCTAD).

The exchange has nine institutional shareholders: CRISIL, ICICI Bank, IFFCO, LIC, NABARD, NSE, PNB, Canara Bank and Goldman Sachs.