Indian Commodities Trading Market

Turmoil in financial markets, slower growth in high-income countries, and rising inflation have all adversely affected growth prospects for developing countries over the near term. Most countries have shown impressive resilience in this turbulent environment, and growth for developing countries as a group is expected to moderate from 7.8% in 2007 to a still strong 6.5% in 2008. However, vulnerable countries that depend on foreign capital flows are likely to experience a sharper slowdown. Moreover, despite strong production growth at the aggregate level, higher food and energy prices have caused real incomes to decline, significantly increasing the hardships faced by the very poor, particularly in urban centers.

A recent article in the Wall Street Journal noted that if one were to examine the historical performance of the S&P 500, one would find that the stock market is trading at the same level at which it was doing so nine years ago. Commodities markets, on the other hand, have been in a bull trend. Some of the major drivers that have contributed in this stupendous growth of commodity markets globally are
- Increasing influence of Asian demand, particularly from rapidly industrializing China and India
- Increase in commodities prices in international markets as a result of demand growth, reinforced by tight supply capacities, tense geopolitical conditions (especially with respect to the oil market) and intense speculative activity
- With the rise in prices of crude oil, metals and minerals, commodity prices reached record historical levels in nominal terms in 2006, which increased by more than 30% between 2005 and 2006 (and by 80% from 2000 to 2006).
- Numerous developing countries rely on commodities for export revenues, and commodity production and trade provide employment for more than 2.5 billion people worldwide.
- The considerable rise in prices has had an impact on incomes of developing countries. It is estimated that extra revenues resulting from commodity exports were around 6.7 percentage points of GDP for oil-exporting countries and about 3 percentage points for countries exporting mining products.
- Increases in demand from developing countries stimulated by a particularly vigorous commodity consumption per unit of GDP compared to that of developed countries, faster economic growth, and increasing population
- "Globalization" of securities and commodities markets
- Baby boomers are in the middle of their peak savings years and have been one of the major causes of huge inflows of money into the stock market and into mutual funds.
- The increased use of food crops for production of bio-fuels is an important factor that led to large increases in the prices of vegetable oils and grains in 2007, which in turn contributed to an overall 15 percent increase in the index of agricultural prices and a 20 percent rise in food prices.
- The prices of metals have increased more than other commodity prices over the last four years, largely because of an especially strong demand in China.
- Shortages of equipment and skilled workers have significantly increased development costs, and ore grades are deteriorating.

The report on “Indian Commodities Trading Market” offers an in-depth analysis of the Global Commodities Trading Market vis-à-vis the Indian Commodities Trading Market. It discusses the overall structure of the Global Commodities Market as well as Indian Commodities Market from an insider perspective and provides a comprehensive study on macro and micro factors driving the growth of this market.

The report furnishes up-to-date facts and figures following meticulous observation with an aim to provide you with real insights into the commodity trading market as it stands today; the knowledge one needs to stand out and make informed decisions. The expanse of such insights into the past and present scenario percolates down to every known commodity currently traded. A conscious effort has been made to provide an overview of all there is to know and know of in the volatile market whilst a detailed product-wise and segment-wise is used in conjunction to expand. Taking into account that Price and Risk being the key drivers of the market, the report presents an exclusive section which maps price growth trend behaviour, factors triggering such behaviour, tracking relative performance of commodities , effects on the market players directly or indirectly using composite indexes from leading sources, the use of various hedging tools such as forwards and options and the relative performance in comparison, the implication and significance of the various regulatory bodies, commissions and statutory acts to highlight a few.

Table of Contents

Section I: Commodities Trading – An Overview

1. How Commodities Market Evolved – Historical Perspective

2. How Commodities Trading Market Works
2.1 Involved Parties
2.2 Types of Contracts
2.3 Participants in derivative contracts
2.4 Trading Techniques in Commodities Market
2.4.1 Ready Delivery Market
2.4.2 Specific Delivery Market
2.4.3 Futures Market
2.4.4 Auction Market
2.5 Requirement & Benefits of Commodity Derivatives

Section II: Commodities Market – An Analysis

1. Global Commodities Market – An Overview
1.1 Commodities Trading vis-à-vis Role of Investment Banks
1.1.1 Barclays Capital Commodities - Profile
1.1.2 BNP Paribas Commodity Futures – Profile
1.1.3 Citi Global Commodities – Profile
1.1.4 DB Commodity Services LLC - Profile
1.1.5 Goldman Sachs Commodities – Profile
1.1.6 J.P. Morgan’s Global Commodities Group – Profile
1.1.7 Merrill Lynch Global Commodities (MLCI) - Profile
1.1.8 UBS's Commodities Group
1.2 Energy Trading vis-à-vis Energy Trading In-house Divisions
1.2.1 RBS Sempra Commodities
1.2.2 Chevron’s Supply & Trading
1.2.3 LITASCO (LUKOIL International Trading and Supply Company)
1.2.4 Koch Supply & Trading
1.2.5 AEP Energy Services (Subsidiary of American Electric Power Company, Inc.)
1.2.6 Duke Energy Trading and Marketing (DETM)
1.2.7 Shell Trading (US) Company
1.2.8 Reliant Energy Securities & Commodities Trading Center
1.3 Commodity ETFs and ETNs
1.4 Commodity Trading vis-à-vis Sovereign Wealth Funds (SWFs)
1.4.1 History of SWFs
1.4.2 Driving Factors, Issues, Trends & Opportunities
1.4.3 Sources of Capital
1.4.4 How & where the money is invested – Market Size & Projections
1.4.5 Fund Rankings: Largest Funds by Assets under Management

2. Global Commodities Market Analysis
2.1 Global Commodities Market Size & Forecast
2.2 Commodity Market Profiles – Quick Points (Profile, Producers, Consumers, Largest Markets, Price Performance & Top Companies)
2.2.1 Aluminium Market
2.2.2 Cocoa Market
2.2.3 Coffee Market
2.2.4 Copper Market
2.2.5 Cotton Market
2.2.6 Gold Market
2.2.7 Nickel Market
2.3 Global Commodities Indexes – Performance Analysis
2.3.1 Dow Jones - AIG Commodity Indices
2.3.2 Merrill Lynch Commodity index eXtra (MLCX)
2.3.3 S&P GSCI™ Composite Index
2.3.4 Reuters/Jefferies-CRB® Indices

3. Issues, Trends & Opportunities
3.1 Impact of higher commodity prices
3.2 Movement of oil prices
3.3 Performance of agriculture commodities
3.4 Companies turn to top derivatives dealers for help in hedging
3.5 Carbon to be the biggest global commodity market by 2012
3.6 Renewed interest from investors
3.7 More sophisticated tools & platforms
3.8 Investment banks are major players
3.9 ETFs, changing the equation of Commodities Investment
3.10 China – Major Demand Driver of Global Commodities
3.11 Macro-Economic Driving Factors
3.12 Factors affecting pricing of base metals
3.12.1 Lead (75% y-o-y growth)
3.12.2 Tin (66% y-o-y growth)
3.12.3 Zinc (40% y-o-y decline)
3.12.4 Nickel (4% y-o-y decline)

Section III: Indian Commodities Trading Market

1. Indian Commodities Market – An Overview

2. Indian Commodities Market Size – An Analysis
2.1 MCX vs. SENSEX – A Comparative Analysis

3. Indian Commodities Market – Performance Analysis
3.1 Aluminium Market – Future Contract Value (Jan 07 – Jul 08)
3.2 Coffee Market – Robusta Futures Contract Value (Jan 07 – Aug 08)
3.3 Copper Market – Copper Futures Contract Value (Jan 07 – Jul 08)
3.5 Crude Oil Market – Crude Oil Futures Contract Value (Jan 07 - Aug 08)
3.6 Gold Market – Futures Contract Value (Jan 07 – Aug 08)
3.7 Chana (Chickpea) Market – Futures Contract Value (Jan 07 – May 08)
3.8 Nickel Market – Futures Contract Value (Jan 07 – Jul 08)
3.9 Zinc Market – Futures Contract Value (Jan 07 – Jul 08)
3.10 Lead Market – Price Performance (Jan 07 – Aug 08)
3.11 Cardamom Market – Futures Contract Value (Jan 07 – Jul 08)
3.12 Jeera (Cumin Seed) Market – Futures Contract Value (Jan 07 – Jul 08)
3.13 Lead Market – Futures Contract Value (Jan 07 – Jul 08)
3.14 Mentha Oil Market – Futures Contract Value (Jan 07 – Jul 08)
3.15 Natural Gas Market – Futures Contract Value (Jan 07 – Jul 08)

4. Government Regulations, Initiatives and Reforms
4.1 Setting up a Committee on Role of Futures Trading in 1993
4.2 Setting up of Forward Market Commission in 1953
4.3 Forward Contracts (Regulation) Act, 1952
4.4 Forward Contracts (Regulation) Amendment Bill, 2006
4.5 Forward Contracts (Regulation) Amendment Ordinance, 2008
4.6 Commodities Trading Tax
4.7 Import duty cut & export duty hike in Metals industry

5. Issues, Trends & Opportunities
5.1 Commodity Trends: Hurt by economic slowdown
5.2 Multi Commodity Exchange (MCX) launched currency futures trading
5.2 Hedging ban a slow political process to kill futures market
5.3 Commodity investment goes retail
5.4 Unresolved Issues and Future Prospects
5.5 Scrap now being considered a waste commodity
5.6 Commodity and Equity Markets have been moving in tandem
5.7 Indian Bt Cotton to hit market soon
5.8 Warehousing to take giant leap in India

List of Charts

Chart 1: Mode of Financing in Commodities Trading
Chart 2: Business Operations Model of a Trading Process in a Commodity Exchange
Chart 3: SWFs Market Projections (2007-2012)
Chart 4: Comparison of AUM of SWFs and Asset Managers, Private Equity and Hedge Funds ($ billions)
Chart 5: Sovereign Wealth Fund Deal Volume (1997-2007)
Chart 6: Sector-wise growth: Exchange trade of commodity derivatives by volume (03-06)
Chart 7: World’s leading Commodity Exchanges in developing countries – 2006 Contracts ($millions)
Chart 8: Major base metal commodity exchanges & emerging markets
Chart 9: Base Metal Price Trend – 2006 vs. Present Price
Chart 10: Cocoa Monthly Averages of Daily Prices (Oct 07- Oct 08)
Chart 11: ICO Indicator Prices - Annual & Monthly Averages (1998 to 2008)
Chart 12: Global Cotton Average Price Trend ("A" Index (cents/pound)) – 1988 -2008
Chart 13: Merrill Lynch Commodity index eXtra (MLCX) - Commodity Weightings
Chart 14: MLCX Weights as of January 2008
Chart 15: MLCXTR outperformance vs. SPGCCITR & DJAIGTR
Chart 16: Reuters/Jefferies CRB® Total Return Index: Jan 82 – Sep 08 (monthly close)
Chart 17: Forecast of China's Share of the Growth in Demand for Global Commodities- 2009
Chart 18: Types of Commodities Traded in India
Chart 19: MCX vs. SENSEX – Comparative Analysis (Jan 06-Sep 08)
Chart 20: India's Aluminium Futures Contract in Value (Rs. Crore) (Jan 07 – Jul 08)
Chart 21: India's Coffee Robusta Futures Contract in Value (Rs. Lakhs) (Jan 07 – Aug 08)
Chart 22: India's Copper Futures Contract in Value (Rs. Crore)
Chart 23: India's Crude Oil Futures Contract in Value (Rs. Crore)
Chart 24: India's Gold (1Kg) Futures Contract in Value (Rs. Crore)
Chart 25: India's Gold (100g) Futures contract in Value (Rs. Crore)
Chart 26: India's Chana (Chickpea) Futures Contract in Value (Rs. Crore)
Chart 27: India's Nickel Futures Contract in Value (Rs. Crore)
Chart 28: India's Zinc Futures Contract in Value (Rs. Crore)
Chart 29: India's Lead Futures Contract in Value (Rs. Crore)
Chart 30: India's Cardamom Futures Contract in Value (Rs. Crore)
Chart 31: India's Jeera (Cumin Seed) Futures Contract in Value (Rs. Lakhs)
Chart 32: India's Lead Futures Contract in Value (Rs. Crore)
Chart 33: India's Mentha Oil Futures Contract in Value (Rs. Crore)
Chart 34: India's Natural Gas Futures Contract in Value (Rs. Crore)

List of Tables

Table 1: The Global Economic Outlook (2006-2010)
Table 2: Major Global Commodity Exchanges
Table 3: Major Asian Commodity Exchanges
Table 4: Major European Commodity Exchanges
Table 5: Commodity Traders – List of top banks, Financial Institutions & other top companies
Table 6: Fund Rankings: Largest Funds by Assets under Management
Table 7: Global Commodity Prices – Monthly & Yearly Averages (Jan 06 - Sep 08)
Table 8: Commodity Forecast Nominal Prices (2007-2020)
Table 9: World Cocoa Market Estimates (in million metric tons) – 2002-2008
Table 10: ICO Indicator Prices - Annual & Monthly Averages (1998 to 2008)
Table 11: Global Cotton Average Price Trend ("A" Index (cents/pound)) – 1988 -2008
Table 12: Comparison of Commodity Indexes
Table 13: Dow Jones AIG Total Return Performance %
Table 14: Dow Jones AIG Excess Return Performance %
Table 15: Dow Jones AIG Yearly Returns (1990-2008)
Table 16: DJGI AIG Commodity Index - Commodity Weightings
Table 17: Merrill Lynch Commodity index eXtra (MLCX) - Commodity Weightings
Table 18: S&P GSCI™ Components and Dollar Weights (%)
Table 19: S&P GSCI™ Index Values
Table 20: Commodity Exchanges in India
Table 21: Trend of Commodities in National Commodity & Derivatives Exchange (Oct 08)
Table 22: Trend of Commodities in Multi Commodity Exchange of India (Oct 08)
Table 23: Trend of Metals in Multi Commodity Exchange of India (MCX) and National Commodity & Derivatives Exchange (NCDEX) (Oct 08)
Table 24: Trend of Oil Commodities traded in NYMEX (Oct 08)
Table 25: Trend of Metal commodities traded in NYMEX (Oct 08)

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