Spot market sizzles on futures ban

NEW DELHI: The ban on commodity futures has fired up spot markets as traders use the lack of transparent price discovery and gaps in information to make a killing. All vegetable oils flared up on Thursday as the ban on futures trading in soya oil comes into effect.

What���s more, oilseeds trading has become highly active as a proxy for soyabean oil. The Indore-based NBoT, the hub of soya complex futures, launched two soyabean contracts on Thursday to capture this shift in trading interest.

With no avenue left to hedge their risk in the domestic market, edible oil importers may shy away from contracting large soya and crude palm oil volumes overseas. That will further raise prices in the country by depleting the supply pipeline.

All vegetable oils, including mustard, palmolein and soya, rose sharply on Thursday in the spot market after refineries and traders in the cash market upped the ante.

���Soyabean oil has gone up by a sharp Re 1/kg immediately in Indore after the ban was announced on Wednesday. The government���s belief that it would contain inflation by stopping soya oil futures appears to have been misplaced,��� said Rajesh Aggarwal, spokesperson of industry body Soyabean Processors Association.

As soya oil is the basis on which all vegetable oils are priced in India, it pulled up the entire edible oil table. RBD palmolein has jumped from Rs 540/10 kg on Wednesday to Rs 560/10 kg on Thursday. A similar trend was seen in mustard and groundnut oil as well, market watchers said.

India will also end up importing inflation faster. ���Refiners are now free to charge the higher edible oil prices prevailing overseas because there is no local price discovery mechanism left to act as a counterbalance. Till last week, price of soya oil at NBoT was lower than cost of imported oil at Kandla. Now it is slowly inching towards parity,��� a trader with an MNC said.

As the ban on futures has taken away pan-Indian price discovery in soya oil, punters have shifted their attention to soyabeans. Spot price of soyabean has risen by more than Rs 50/qtl.

In bean futures, open interest on NCDEX has risen by 2,800 per tonne, arresting a continuous decline till last week. Open interest in mustard seed on NCDEX also rose 4% due to the interest in oilseed trading.

Almost on cue, NBoT on Thursday launched two new soya bean contracts for June and July. That would help the exchange partially make up for huge loss in turnover due to the ban on soya oil trading.

���Traders are creating a synthetic long position for soya oil through beans. Currently, the soya bean and oil relationship in value terms is 41%. So to cover a 100-tonne exposure in soya oil, traders need to buy 500 tonnes of soya beans or 245 tonnes mustard seed.

Though it is at best an imperfect hedge, it is the only one available to the market right now,��� said MF Global Commodities India research head Rajini Panicker.