1. Because cement prices are relatively stable and predictable, there is little hedging or speculative demand for cement futures. The essential trading activity to keep the futures market afloat would not occur. 2.
What is the purpose of futures markets?
Futures contracts enable the organization to better control risk and generate more predictable revenue. Currency futures can be used by companies doing business worldwide to mitigate the risk of currency volatility.
Is cement considered a commodity?
NCDEX is lobbying for cement futures trading because it believes it will protect bulk cement buyers from price volatility. A futures contract is a standardized contract to purchase or sell a specific underlying product at a set price at a future date. It is exchanged on a futures exchange.
In the last year, cement costs have climbed by 30-34 percent in several parts of India.
The FMC, on the other hand, has yet to give its approval. In fact, the regulator is concerned about cement futures trading for three reasons. It is, first and foremost, a processed product. Second, there is no precedent in the world. Finally, cement is a trademarked product.
“We’re looking into it,” says Anupam Mishra, one of the commission’s directors. “It is still being considered. There is no deadline for approval “he continues.
Another FMC official, who declined to be identified, says: “Our research indicates that China merely dabbled with cement futures contracts, but we don’t have any additional information and obtaining information from China is tough. Manipulation of commodities is common. As a result, before making any decisions, we must do a thorough examination of the implications for all parties concerned.”
Futures trading, according to NCDEX managing director P.H. Ravikumar, will reduce price volatility in the spot market. “Our experience trading agricultural commodities futures shows that spot price volatility is decreased by around 50%,” he says. In the last three years, he claims that cement prices have increased by more than 10% yearly. Other processed commodities, such as sugar, steel ingots, polymers, gold, silver, copper cathode, and aluminum ingots, are exchanged on commodity exchanges, according to officials.
Cement producers are keeping a close eye on this development, as it has recently become a politically charged product.
The government established a dual excise tax structure in February’s Union budget, raising duty from Rs400 per tonne to Rs600 per tonne for cement sold at a retail price over Rs190 for a 50kg bag and lowering it to Rs300 per tonne for cement sold at a retail price below Rs190 for a 50kg bag.
As a result, cement makers increased the retail price by Rs10-12 per 50kg bag, as the material was nowhere in India offered for Rs190. Despite the government’s insistence, the manufacturers did not reverse the price hike. In fact, in May, finance minister P. Chidambaram was obliged to modify the excise charge structure because growing prices were putting inflationary pressures on the economy. Cement sold for less than Rs250 per bag is subject to a 12 percent ad valorem charge under the new regime. Except in Mumbai, India’s largest cement market, where a 50kg bag costs more than Rs250, prices have dropped by Rs3-5 across the country.
Nearly half of the 148 million tonnes of cement produced in India is supplied directly to builders, contractors, infrastructure projects, government purchases, and “non-trade” industrial acquisitions. In the non-trade market, order sizes range from 50-100 tonnes to 1,000 tonnes. With escalating cement prices, NCDEX believes that a hedging instrument for bulk users in the non-trade market is required. Hedging is unlikely to be chosen by retail consumers.
With a market value of Rs55,000 crore, India is the world’s second largest cement market after China. While a 50kg bag of cement costs roughly Rs250 in Mumbai, the national average price is around Rs215-220. Cement prices are projected to reduce in the next years as new capacity are added.
“Futures could be a natural hedge for cement manufacturers in such a case,” says one NCDEX official who did not want to be identified. He believes that the building community has been lobbying for such an exchange for a long time.
Anil Singhvi, who recently quit as managing director of Ambuja Cement India Ltd and is now CEO of Ican Investment Advisors Ltd, the Indian advisory arm of Swiss asset management business Notz Stucki, says, “I don’t think there is much validity in the futures market for cement.” “The futures market is for commodities that experience daily price volatility. Cement costs do not alter on a daily basis. For the past few months, it has stayed stable.” According to Singhvi, cement prices are unlikely to alter more than 5-10 percent in the foreseeable future.
Sanjeev Bafna, Grasim Industries Ltd’s joint president and deputy CFO, says: “Futures trading is speculative in nature. Cement is typically marketed through retail channels because it is a heavy and perishable product. We’ll have to wait and see how it works, as well as what the government’s policy is on the subject.”
Cement futures, on the other hand, are viewed positively by certain industry analysts. “Cement futures trading could see some price stability in the near future. Cement from excess regions might be shipped to cement-deficit areas, bringing cement prices back into balance “ICICI Direct’s Rupesh Sankhe, an analyst following the commodity, says
“Assuming a builder need two lakh tonnes of cement per month at a market price of Rs250 for a 50kg bag, it would be impractical for him to purchase his entire requirement in one go because cement is perishable,” adds the exchange official. “He can lock in the price of cement by engaging into a futures contract. This is a logical hedge against cement price fluctuation “he continues.
Why would someone buy futures contracts instead of the underlying asset?
Why would someone buy a futures contract instead of the underlying asset? Someone would do this to invest in an asset’s future worth without having to actually take possession of the asset. This enables ordinary people to invest in crops or oil and maintain control over the asset until delivery.
Is the Philippines home to a futures market?
Commodity Futures and Derivatives in the Philippines The Securities and Exchange Commission (SEC) is the primary regulatory body in charge of capital markets. It regulates securities trading, as well as derivatives and commodity futures transactions.
Why are futures preferable to options?
- Futures and options are common derivatives contracts used by hedgers and speculators on a wide range of underlying securities.
- Futures have various advantages over options, including being easier to comprehend and value, allowing for wider margin use, and being more liquid.
- Even yet, futures are more complicated than the underlying assets they track. Before you trade futures, be sure you’re aware of all the hazards.
Is there a futures market in India?
Yes, electronic futures trading is available approximately 24 hours a day. If you’re trading in India, you can do it during the day between 9:00 a.m. and 5:00 p.m., which is standard exchange hours. Each commodity category has its own start and finish times.
What is the raw material for cement?
Limestone, shells, and chalk or marl are common cement-making materials, as are shale, clay, slate, blast furnace slag, silica sand, and iron ore.
Is there a link between futures and the stock market?
- Stock index futures, such as the S&P 500 E-mini Futures (ES), reflect expectations for a stock index’s price at a later date, based on dividends and interest rates.
- Index futures are two-party agreements that are considered a zero-sum game because when one party wins, the other loses, and there is no net wealth transfer.
- While the stock market in the United States is most busy from 9:30 a.m. to 4:00 p.m. ET, stock index futures trade almost continuously.
- Outside of normal market hours, the rise or fall in index futures is frequently utilized as a predictor of whether the stock market will open higher or lower the next day.
- Arbitrageurs use buy and sell programs in the stock market to profit from price differences between index futures and fair value.