Chilli turns hot for sellers as warehouse stocks plummet
Low stocks of chilli at the NCDEX warehouses have put the pressure on sellers, who are rushing for cover. NCDEX stocks of LCA 334 variety on December 11 stand at 1,516 tonnes, while open interest was 15,685 tonnes on Tuesday.
By Ram Sahgal, TNN |
MUMBAI: Low stocks of chilli at the NCDEX warehouses have put the pressure on sellers, who are rushing for cover. NCDEX stocks of LCA 334 variety on December 11 stand at 1,516 tonnes, while open interest was 15,685 tonnes on Tuesday.
A look at the OI figures a week ago (December 5) indicates that open position has come down from 18,175 tonnes. Prices, which fell over the whole of last week, have shot up from Rs 6,393 per quintal on December 5 to Rs 6,738 on Tuesday and volumes have come down from 48,810 tonnes to 19,785 tonnes.
Over the same period, however, the spot prices at Guntur have come down from Rs 6,300-7,100 per quintal to Rs 5,800-6,500 on expectations of a better crop in 2006-07, arrivals of which commence in December and go on to May and no export demand.
This should have meant a decline in futures prices too, which has not happened though on account of low stocks at NCDEX warehouses and the consequent squeeze on sellers. On Tuesday, the December contract hit the upper circuit, rising 4.7% from Rs 6,437 per quintal in the previous trading session.
The surmise that can be drawn from a scenario in which OI and volumes are declining while prices are rising is that money will move out of the market once short covering has run its course (prices will decline). The genesis of the low stocks, said a source, can be traced to the withdrawal of chilli from NCDEX warehouses when the futures were quoting at between Rs 4,500-5,000 levels and being sold on the spot market at Rs 6,000 per quintal.
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The stocks by end October-November, said the source, had slipped to 1,500-2,000 tonnes from a high of 12,000 tonnes. Kishore Narne of Anand Rathi Commodities said that shorts were being squeezed in the current scenario. “The eduction in OI is an indicator of short-covering — sellers become buyers. The other option is to pick up deliveries from the spot market and move them to the exchange warehouses,” he said. But here’s where the catch lies say spot traders at Guntur. While figures on the overall quantum of stocks lying in the Guntur cold storages vary from 5-6 lakh bags to 2 lakh bags, spot traders more or less concur on the paucity of good quality paala stocks in the cold storages that can be delivered on the exchanges. And they say spot prices can rise too after taking cues from the futures market.
“There are 60-65 cold storages in Guntur wherein total stocks of chilli are 5-6 lakh bags. Out of these just 50-60,000 bags are of good quality while 2.5 lakh bags are of the fathki (inferior) variety which sell between Rs 2,000 and Rs 2,500 per quintal against Rs 5,800-6,500 of good quality stock at today’s (Tuesday’s) rate,” said a spot trader from Guntur.
“There are just 40,000-50,000 LCA 334 good quality bags in Guntur cold storage,” said Ashok Dattani, a Mumbai-based chilli trader.
“Short sellers are being squeezed as traders and punters have realised they will not be able to deliver on the expiry date. Those who sold thought prices would go down as new arrivals were around the corner. However the longs have realised that they (shorts) will not be able to deliver and have to pay the penalty of 5% or choose to offset their positions.”
In the event that shorts square off their positions, longs still stand to gain as short covering near contract expiry raises prices and buyers can sell and book their mark to market gains.
Chilli prices soared to Rs 70-75 per kg this year against the average of Rs 25 as crop was 50% lower than the previous year when prices as low as Rs 15 per kg induced farmers to move to other crops. Trade estimates the new crop at 210 lakh bags in 2006-07 compared to 145 lakh bags this year. Out of this 135 lakh bags are estimated to be output from Guntur alone.
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