INDUSTRY PROFILE:

MCX (MULTI COMMODITY EXCHANGE)

‘MULTI COMMODITY EXCHANGE’ of India limited is a new order exchange with a

mandate for setting up a nationwide, online multi-commodity market place, offering unlimited

growth opportunities to commodities market participants. As a true neutral market, MCX has

taken several initiatives for users in a new generation commodities futures market in the process,

become the country’s premier exchange.

MCX, an independent and a de-mutualized exchange since inception, is all set up to

introduce a state of the art, online digital exchange for commodities futures trading in the country

and has accordingly initiated several steps to translate this vision into reality.

NCDEX (NATIONAL COMMODITIES AND DERIVATIVES EXCHANGE)

NCDEX started working on 15th December, 2003. This exchange provides facilities to

their trading and clearing member at different 130 centers for contract. In commodity market the

main participants are speculators, hedgers and arbitrageurs.

Facilities Provided By NCDEX

NCDEX has developed facility for checking of commodity and also provides a wear

house facility

By collaborating with industrial partners, industrial companies, news agencies, banks and

developers of kiosk network NCDEX is able to provide current rates and contracts rate.

To prepare guidelines related to special products of securitization NCDEX works with

bank.

To avail farmers from risk of fluctuation in prices NCDEX provides special services for

agricultural.

NCDEX is working with tax officer to make clear different types of sales and service

taxes.

NCDEX is providing attractive products like “weather derivatives”

Overview

 

Headquartered in Mumbai, Multi Commodity Exchange of India Ltd (MCX)

is a state-of-the-art electronic commodity futures exchange. The

demutualised Exchange has permanent recognition from the Government of

India to facilitate online trading, and clearing and settlement operations for

commodity futures across the country.

Having started operations in November 2003, today, MCX holds a market

share of over 80%* (87.3% during the nine months ended December 31,

2011 and 82.4% in FY2011) of the Indian commodity futures market, and

has more than 2,153 registered members operating through over 2,96,896

including CTCL trading terminals spread over 1,572 cities and towns across

India. The Exchange was the fifth largest^ commodity exchange, among all

the commodity exchanges considered in the Futures Industry Association

survey, in terms of the number of contracts traded for the six months ended

June 30, 2011

MCX offers more than 40 commodities across various segments such as

bullion, ferrous and non-ferrous metals, energy, and a number of agri-

commodities on its platform. The Exchange introduces standardised

commodity futures contracts on its platform. These contracts in futures

exchanges provide an anonymous trading environment for ideal price

discovery. The Exchange is the world's largest exchange in Silver, the

second largest in Gold, Copper and Natural Gas and the third largest in

Crude Oil futures, based on the comparison of the trading volumes of our

Exchange with those of the leading global commodity futures exchanges in

the world, for the calendar year 2010 and the six months ended June 30,

2011.

MCX has been certified to three ISO standards including ISO 9001:2008

Quality Management System standard, ISO 14001:2004 Environmental

Management System standard and ISO/IEC 27001:2005 Information

Security Management System standard. The Exchange’s platform enables

anonymous trades, leading to efficient price discovery. Moreover, for

globally-traded commodities, MCX’s platform enables domestic participants

to trade in Indian currency.

The Exchange strives to be at the forefront of developments in the

commodities futures industry. MCX was the first exchange in India to

initiate evening sessions to synchronise with the trading hours of global

exchanges in London, New York and other major international markets. It

was the first exchange in India to offer futures trading in steel, crude oil, and

almond. In June 2005, MCX launched MCXCOMDEX, India’s first real

time composite commodity futures index, which provides our members with

valuable information regarding market movements in the key commodities,

as determined by physical market size in India, which are actively traded on

our Exchange. We have introduced several other indices, including

MCXAgri (agricultural commodities index), MCXEnergy (energy

commodities index) and MCXMetal (metal commodities index). We also

have three rain indices, namely RAINDEXMUM (Mumbai), RAINDEXIDR

(Indore), and RAINDEXJAI (Jaipur) which track the progress of monsoon

rains in their respective geographic locations. In December 2009, we

launched EFP transactions for the first time in India, which enables parties

with futures positions to swap their positions in the physical markets and

vice versa.

MCX has forged strategic alliances with various national and international

trade bodies / associations / organisations, which we believe enables us to

grow our business and expand our market presence. Among international

alliances, we have formed strategic alliances with a number of exchanges

such as the London Metal Exchange, the New York Mercantile Exchange,

the LIFFE Administration and Management (under renewal), the Baltic

Exchange Limited, Shanghai Futures Exchange and Taiwan Futures

Exchange.

 

Key shareholders

Promoted by FTIL, MCX enjoys the confidence of blue chips in the Indian

and international financial sectors such as FID Funds (Mauritius) Limited

(an affiliate of Fidelity International), Euronext N.V. (an affiliate of NYSE

Euronext) and Merrill Lynch Holdings (Mauritius).

Gold

 

Gold is the oldest precious metal known to man and for thousands of years it

has been valued as a global currency, a commodity, an investment and

simply an object of beauty.

 

Major Characteristics

Gold (Chemical Symbol-Au) is primarily a monetary asset and partly

a commodity.

Gold is the world's oldest international currency.

Gold is an important element of global monetary reserves.

With regards to investment value, more than two-thirds of gold's total

accumulated holdings is with central banks' reserves, private players, and

held in the form of high-karat jewellery.

Less than one-third of gold's total accumulated holdings are used as

“commodity” for jewellery in the western markets and industry.

 

Demand and Supply Scenario

Gold demand in 2010 reached a 10-year high of 3,812.2 tonnes,

worth US$150billon, as a result of;

o strong growth in jewellery demand;

o the revival of the Indian market;

o strong momentum in Chinese gold demand and

o a paradigm shift in the official sector, where central banks

became net purchasers of gold for the first time in 21 years.

China was the world's largest gold producer with 340.88 tonnes in

2010, followed by the United States and South Africa.

In 2010, India was the world's largest gold consumer with an annual

demand of 963 tonnes.

The total supply of gold coming onto the market in 2010 reached

4,108 tonnes, a rise of 2% from 2009 levels.

 

Global Scenario

London is the world’s biggest clearing house.

Mumbai is under India's liberalised gold regime.

New York is the home of gold futures trading.

Zurich is a physical turntable.

Istanbul, Dubai, Singapore, and Hong Kong are doorways to

important consuming regions.

Tokyo, where TOCOM sets the mood of Japan.

 

Indian Scenario

India is the largest market for gold jewellery in the world. 2010 was

a record year for Indian jewellery demand; at 745.7 tonnes, annual

demand was 13% above the previous peak in 1998. In local currency

terms, Indian jewellery demand more than doubled in 2010.

A 20% rise in the rupee price of gold combined with a 69% rise in

the volume of demand, pushed up the value of gold demand by 101% to 

1,342 billion. This compares with 2009 demand of  669 billon.

The rising price of gold, particularly in the latter half of 2010,

created a 'virtuous circle' of higher price expectations among Indian

consumers, which fuelled purchases, thereby further driving up local

prices.

 

Factors Influencing the Market

Above ground supply of gold from central bank's sale, reclaimed

scrap, and official gold loans.

Hedging interest of producers/miners.

World macroeconomic factors such as the US Dollar and interest

rate, and economic events.

Commodity-specific events such as the construction of new

production facilities or processes, unexpected mine or plant closures, or

industry restructuring, all affect metal prices.

In India, gold demand is also determined to a large extent by its price

level and volatility.

 

Measurement

Weight Conversion Table

To convert from To Multiply by

Troy ounces Grams 31.1035

Million ounces Tonnes 31.1035

Grams Troy ounces 0.0321507

Kilograms Troy ounces 32.1507

Tonnes Troy ounces 32,150.70

Kilograms Tolas 85.755

Kilograms Taels 26.7172

Kilograms Bahts 68.41

Troy ounces Grains 480.00

Troy ounces Avoirdupois ounces 1.09714

Troy ounces Penny weights 20.00

Avoirdupois ounces Troy ounces 0.911458

Short tonne Metric tonne 0.9072

 

Purity

Gold purity is measured in terms of karat and fineness:

Karat: pure gold is defined as 24 karat

Fineness: parts per thousand

Thus, 18 karat = 18/24 of 1,000 parts = 750 fineness

Silver

 

Major Characteristics

Silver (Chemical Symbol-Ag) is a brilliant grey-white metal that is

soft and malleable.

Silver has unique properties such as its strength, malleability,

ductility, electrical and thermal conductivity, sensitivity, high reflectance

of light, and reactivity.

The main source of silver is in lead ore, although it can also be found

associated with copper, zinc and gold and produced as a by-product of

base metal mining activities.

Secondary silver sources include coin melt, scrap recovery, and dis-

hoarding from countries where export is restricted. Secondary sources are

price sensitive.

Silver is unique amongst metals due to the fact that it can be

classified as both a precious metal and an industrial metal.

Today, silver is sought as a valuable and practical industrial

commodity and as an investment.

Silver is an important element of global monetary reserves.

It is an effective portfolio diversifier.

 

Demand and Supply Scenario

Silverware achieved an increase of 4.6%, owing to stock-related

gains in India.

Demand for coins and medals surged yet higher from 2008, rising by

20.7% to reach a new record high of 78.7 Moz (2,447 t) in 2009 on the

back of strong investment demand.

In 2009, implied net investment soared to 136.9 Moz (4,258 t),

buoyed by safe haven concerns, which led to strong inflows into both

ETFs and physical investment.

Scrap supply continued to decrease in 2009 by almost 6% to 165.7

Moz, despite a strong recovery in prices over the year.

Most notable increases were seen in Bolivia and Argentina (both

+6.8 Moz) with by largest single decline coming from Australia (-9.4

Moz).

Net government sales fell by just over one half to 13.7 Moz (426t) in

2009, primarily driven by lowest stock sales from Russia, coupled with

the continued absence of any disposal from China and India.

 

Global Scenario

Silver is predominantly traded on the London Bullion Market

Association (LBMA) and COMEX in New York.

LBMA, as the global hub of over-the-counter (OTC) trading in

silver, is its main physical market. Comex is a futures and options

exchange, where most fund activity is focused.

Silver is invariably quoted in the US dollars per troy ounce.

 

Indian Scenario

India's silver demand averages 2500 tonnes per year, whereas the

country's production was around 206.95 tonnes in 2010.

Nearly 60% of India's silver demand comes from farmers and rural

India, who store their savings in silver bangles and coins.

 

Factors Influencing the Market

Economic events such as national industrial growth, global financial

crisis, recession, and inflation affect metal prices.

Commodity-specific events such as the construction of new

production facilities or processes, unexpected mine or plant closures, or

industry restructuring, all affect metal prices.

Governments set trade policy (implementation or suspension of

taxes, penalties, and quotas) that affect supply by regulating (restricting or

encouraging) material flow.

Geopolitical events involving governments or economic paradigms

and armed conflict can cause major changes.

A faster growth in demand against supply often leads to a drop in

stocks with the government and investors.

Silver demand is underpinned by the demand from jewellery and

silverware, industrial applications, and overall industrial growth.

In India, the real industrial demand occupies a small share in the total

industrial demand of silver. This is in sharp contrast to most developed

economies.

In India, silver demand is also determined to a large extent by its

price level and volatility.

 

Measurement

Weight Conversion Table

To convert from To Multiply by

1 Moz Metric tons 31.103

1 Ton Troy ounces 32,511

1 Ton Grams 1,000,000

 

Platinum

 

Platinum is the rarest of all precious metals. It has several unique chemical

and physical properties that make it essential in a wide range of industrial

and environmental applications. Platinum is also considered as one of the

finest of all jewellery metals.

 

Major Characteristics

Platinum as a pure metal is silvery-white in appearance, lustrous,

ductile, and malleable. It is widely used in several industrial applications

as it possesses high resistance to chemical attack, excellent high-

temperature characteristics, and stable electrical properties.

Platinum is corrosion resistant and is more precious than gold.

Platinum's wear- and tarnish-resistance characteristics are well suited for

making fine jewelry.

Platinum is traded as a commodity with prices determined by market

forces. It is also a widely sought after investment avenue in recent years.

However, it is not widely treated as a monetary base like gold

 

Global Supply Demand Scenario

The supply of platinum is met by mine production, auto catalyst

refining and jewellery refining with their respective contribution estimated

to be 6.15 million ounces, 1 million ounce and 0.9 million ounce in 2008.

The annual production of platinum has averaged around 6.2 million

ounces (193 tonnes) in the previous three years from 2006 with more than

90% of the production coming from South Africa (76%) and Russia. The

other producers are United States of America, Canada and Zimbabwe.

The production of platinum is highly dependent on South Africa's

production with 2009 output from South Africa, Russia, USA and

Zimbabwe estimated to be 4.7 million ouces, 0.74, 0.25 and 0.33 million

ounces respectively.

The platinum mining industry is very capital intensive and it is

reported that approximately 10 tonnes of raw ore has to be mined to

produce just one pure ounce of platinum.

Unlike other precious metals like gold and silver, there are no large

above-ground platinum stockpiles to protect against significant supply

disruptions. Some estimates predict that existing above ground reserves

would last only for a year, if platinum mining was suddenly stopped.

The demand for platinum mainly comes from auto catalyst,

jewellery, other industrial application and investment. The other industries

uses platinum are electronics, glass and petroleum industry.

The total global demand for this rare metal is reported to be around

7.79 million ounces in 2008, with consumption by auto catalyst (used in

automobiles), jewellery, investment and other industrial applications

estimated to be around 3.8, 1.6, 0.45 and 1.9 million ounces respectively.

North America, Europe, China and Japan are the most important

economies accounting for majority of the global platinum consumption.

 

World Gold Markets

The London Platinum and Palladium Market (LPPM), which provides the

industry benchmark price ‘London fix’ 

Derivative exchanges at New York – CME (COMEX), TOCOM (Japan),

MCX (Mumbai)

 

Indian Platinum Market

India's appetite for platinum has been steadily increasing in recent

years on account of the country's economic progress leading to rising

industrial demand and increasing preference for platinum jewellery in

urban areas.

India's consumption of platinum in 2008-09 is estimated to be around

932 kgs, which is expected to rise to around 1200 kgs in 2009-10.

The approximate consumption by various sectors in India is

estimated to be automobile (55%), petrochemicals (25%), jewellery (15%)

and electronics & dental (5%).

Market Moving Factors

Indian platinum prices are highly correlated with international prices.

However, the fluctuations in the INR-US Dollar impact domestic platinum

prices and have to be closely followed.

The global prices are driven by a host of factors with macro-

economic factors like strength of the global economy, currency

movements, interest rates, rising importance of emerging markets being

major influencing factors.

Economic situation in major consuming countries like USA, Europe,

Japan and China influence consumption on account to its high demand

from industrial sectors, especially automobiles.

Platinum production is highly skewed with just four mines and two

countries producing almost 90% of the total annual production. Prices are

influenced profoundly by production disruptions, policies taken in

producing countries. The influence of this factor is enhanced by the

absence of any significant global stocks of platinum in the world, unlike

that of gold and silver. Additionally, platinum mining is a very capital

intensive industry, which discourages entry of new players.

Any change in global stocks, of which a major portion is present in

Russia do influence prices.

The price movement in other precious metals, especially gold is a

major influencing factor.

 

Measurement

Weight Conversion Table

To Convert from To Multiply by

Troy Ounce Grams 31.1035

Troy Ounce Kilograms 0.0311035

Million Troy Ounce Tonnes 31.1035

Kilograms Troy Ounce 32.1507

Tonnes Troy Ounce 32150.7