A Study On Indian Commodities Market

CONTENTS
Page No.
I.
Research & Design 1. Introduction 2. Objectives of the study 3. Scope of the Study 4. Research methodology 5. Limitations of the Study 6. Chapter Scheme
3-6
II.
Introduction to Commodities. 1. History 2. Indian Commodity Market 3. Registration in Commodity Market 4. Rituals of Investor 8 9-10 11-12 13-16
III.
Commodity Exchange. 1. Meaning 2. List of Commodities exchange 18 19-23
IV.
Various Commodities Traded. 1. Cereals 2. Fibre 3. Plantation 4. Pulses 26-27 28-29 30-31 32-33
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Indian Commodity Market
5. Spices 6. Energy 7. Bullion (Precious metals) 8. Industrial metals 9. Oil & Oil seeds 10. Petrochemicals. 11. Others
34-35 36-38 39-40 41-43 44-48 49 50-51
V.
Commodity Trading. 1. Introduction 2. Commodity Trading Option 3. Commodity Broker 4. Dematerialization. a. Meaning b. Benefits of Demat c. Opening of a Demat Account. 53 54 55 56-62
VI. VII.
Data Presentation & Financial Analysis Findings & Suggestions
63-80 81-85
Conclusion
87
Bibliography
88
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Chapter I-Research Design
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1. Introduction:
Financial System is made up of money market and capital market. Money market helps for the adjustment of liquidity position of funds requirement for short term period and the capital market provides for the long term period. Indian financial system is influenced by the dependent on specialized and non specialized financial institution of organised and unorganised financial markets.
Commodity Market:
The vast geographical extent of India and her huge population is aptly complemented by the size of her market. The broadest classification of the Indian Market can be made in terms of the commodity market and the bond market. The commodity market in India comprises of all palpable markets that we come across in our daily lives. Such markets are social institutions that facilitate exchange of goods for money. The cost of goods is estimated in terms of domestic currency. A commodity is a product that has commercial value, which can be produced, bought, sold, and consumed. Commodities are basically the products of the primary sector of an economy. The primary sector of an economy is concerned with agriculture and extraction of raw materials such as metals, energy (crude oil, natural gas), etc., which serve as basic inputs for the secondary sector of the economy. While surveying various web sites I came to know the whole commodity market and the exchange takes place in this market is broadly classify into two principle categories that is agriculture and non agriculture commodity market which I have briefly described in the project..
2. Objectives of the Study:
1. To study about the Origin & Registration in the commodity market.
2. To know the Various Commodity Exchanges in India.
3. To know about the commodities traded in Indian commodity market.

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4. To know about the trading procedure and Dematerialization.
5. To know the price variation of Bullion and Industrial metals during the past five years. 6. To make necessary suggestions on the basis of study conducted.
3. Scope of the Study: The present study covers the Indian commodity market and the various commodities traded in the market.
Further, the study aims at giving detailed information about the Bullion commodity market and its financial analysis for the past five years.
4. Research Methodology: 1. Primary Method

These are the measurement observed and recorded as a part of a n original study. These are those data that are not available elsewhere. Therefore primary information compiled is both structured and unstructured. 2. Secondary Method These are compiled by someone other than the user. These data are collected by referring the annual report and various websites.
5. Limitations of the Study: The main limitation of the study is the Time Factor. As the implant training was only for one month, less information could be collected within the given period of time.
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6. Chapter Scheme: To study the entitled THE STUDY ON INDIAN COMMODITY MARKET WITH SPECIAL REFERENCE TO BULLION & INDUSTRIAL METALS is divided into eight chapters.
Chapter-I Initiates with the research and design of the whole project. The objectives, scope, limitations and a brief introduction about the commodity market is provided..
Chapter-II
gives a detailed information about the
Indian commodity
market and the registration process.
Chapter-III
Gives a picture about the various commodity exchanges
available in India.
Chapter-IV gives details about the various commodities traded in Indian market.
Chapter-V Draw a profile about the duties of the broker and the procedure as to how the trading is performed.
Chapter-VI is entitled by the financial analysis and detail study about the Bullion Market and Industrial metals in India.
Chapter-VII It is entitled by the major findings and Suggestions.
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Chapter II- Introduction To Commodities
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1. History & Early Life:

The word commodity came into use in English in the 15th century, from the French word derived from the Latin commoditatem (nominative commoditas) meaning fitness, adaptation. History of trading in commodities in India goes back several centuries. But organized futures market in India emerged in 1875 when the Bombay Cotton Trade Association was established. The futures trading in oilseeds started in 1900 when Gujarati Vyapari Mandali (todays National Multi Commodity Exchange, Ahmedabad) was established. The futures trading in gold began in Mumbai in 1920. During the first half of the 20th century, there were many commodity futures exchanges, including the Calcutta Hessian Exchange Ltd. that was established in 1927. Those exchanges traded in jute, pepper, potatoes, sugar, turmeric, etc. However, Indias history of commodity futures market has been turbulent. Options were banned in cotton in 1939 by the Government of Bombay to curb widespread speculation. In mid-1940s, trading in forwards and futures became difficult as a result of price controls by the government. The Forward Contract Regulation Act was passed in 1952. This put in place the regulatory guidelines on forward trading. In late 1960s, the Government of India suspended forward trading in several commodities like jute, edible oil seeds, cotton, etc. due to fears of increase in commodity prices. However, the government offered to buy agricultural products at Minimum Support Price (MSP) to ensure that the farmer benefited. The government also managed storage, transportation, and distribution of agriculture products. These measures weakened the agricultural commodity markets in India. The government appointed four different committees (Shroff Committee in 1950, Dantwala Committee in 1966, Khusro Committee in 1979, and Kabra Committee in 1993) to go into the regulatory aspects of forward and futures trading in India. In 1996, the World Bank in association with United Nations Conference on Trade and Development (UNCTAD) conducted a study of Indian commodities markets. In the post-liberalization era of the Indian economy, it was the Kabra Committee and the World BankUNCTAD study that finally assessed the scope for forward and futures trading in commodities markets in India and recommended steps to revitalize futures trading. There are four national-level commodity exchanges and 22 regional commodity exchanges in India. The national-level exchanges are Multi Commodity Exchange of India Limited (MCX), National Commodity and Derivatives Exchange Limited (NCDEX), National Multi Commodity Exchange of India Limited (NMCE), and Indian Commodity Exchange (ICEX).
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2. Relevance and Potential of Commodity Markets in India:

Majority of commodities traded on global commodity exchanges are agribased. Commodity markets therefore are of great importance and hold a great potential in case of economies like India, where more than 65 percent of the people are dependent on agriculture. There is a huge domestic market for commodities in India since India consumes a major portion of its agricultural produce locally. Indian commodities market has an excellent growth potential and has created good opportunities for market players. India is the worlds leading producer of more than 15 agricultural commodities and is also the worlds largest consumer of edible oils and gold. It has major markets in regions of urban conglomeration (cities and towns) and nearly 7,500+ Agricultural Produce Marketing Cooperative (APMC) mandis. To add to this, there is a network of over 27,000+ haats (rural bazaars) that are seasonal marketplaces of various commodities. These marketplaces play host to a variety of commodities everyday. The commodity trade segment employs more than five million traders. The potential of the sector has been well identified by the Central government and the state governments and they have invested substantial resources to boost production of agricultural commodities. Many of these commodities would be traded in the futures markets as the food-processing industry grows at a phenomenal pace. Trends indicate that the volume in futures trading tends to be 5-7 times the size of spot trading in the country (internationally, it is much higher at 15 to 20 times). Many nationalized and private sector banks have announced plans to disburse substantial amounts to finance businesses related to commodity trading. The Government of India has initiated several measures to stimulate active trading interest in commodities. Steps like lifting the ban on futures trading in commodities, approving new exchanges, developing exchanges with modern infrastructure and systems such as online trading, and removing legal hurdles to attract more participants have increased the scope of commodities derivatives trading in India. This has boosted both the spot market and the futures market in India. The trading volumes are increasing as the list of commodities traded on national commodity exchanges also continues to expand. The volumes are likely to surge further as a result of the increased interest from the international participants in Indian commodity markets. If these international participants are allowed to participate in commodity markets (like in the case of capital markets), the growth in commodity futures can be expected to be phenomenal. It is expected that foreign institutional investors (FIIs), mutual funds, and banks may be able to participate in commodity derivatives markets in the near future. The launch of options trading in commodity exchanges is also expected after the amendments to the Forward Contract Regulation Act (1952). Commodity trading and commodity financing are going to be rapidly growing businesses in the coming years in India.
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With the liberalization of the Indian economy in 1991, the commodity prices (especially international commodities such as base metals and energy) have been subject to price volatility in international markets, since India is largely a net importer of such commodities. Commodity derivatives exchanges have been established with a view to minimize risks associated with such price volatility. India, being an agro-based economy, has markets for most of the agrobased commodities. India is the largest consumer of gold in the world, which implies a huge market for the yellow metal. India has huge spot markets for all these commodities. For instance, Indore has a huge market for Soya, Ahmedabad for castor seeds and Surendranagar for cotton, etc. During the pre-Independence era, India also had a thriving futures market for commodities such as gold, silver, cotton, edible oils, etc. In mid-1960s, due to wars, natural calamities and the consequent shortages, futures trading in most commodities were banned. The trading of commodities consists of direct physical trading and derivatives trading. Exchange traded commodities have seen an upturn in the volume of trading since the start of the decade. This was largely a result of the growing attraction of commodities as an asset class and a proliferation of investment options which has made it easier to access this market. The global volume of commodities contracts traded on exchanges increased by a fifth in 2010, and a half since 2008, to around 2.5 billion million contracts. During the three years up to the end of 2010, global physical exports of commodities fell by 2%, while the outstanding value of OTC commodities derivatives declined by two-thirds as investors reduced risk following a five-fold increase in value outstanding in the previous three years. Trading on exchanges in China and India has gained in importance in recent years due to their emergence as significant commodities consumers and producers. China accounted for more than 60% of exchange-traded commodities in 2009, up on its 40% share in the previous year. Commodity assets under management more than doubled between 2008 and 2010 to nearly $380bn. Inflows into the sector totalled over $60bn in 2010, the second highest year on record, down from the record $72bn allocated to commodities funds in the previous year. The bulk of funds went into precious metals and energy products. The growth in prices of many commodities in 2010 contributed to the increase in the value of commodities funds under management.
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3. Registration in Commodity Market:

Indian markets have recently thrown open a new avenue for retail investors and traders to participate: commodity derivatives. For those who want to diversify their portfolios beyond shares, bonds and real estate, commodities are the best option. Till some months ago, this wouldn't have made sense. For retail investors could have done very little to actually invest in commodities such as gold and silver or oilseeds in the futures market. This was nearly impossible in commodities except for gold and silver as there was practically no retail avenue for punting in commodities. However, with the setting up of the various multi-commodity exchanges in the country, retail investors can now trade in commodity futures without having physical stocks. Commodities actually offer immense potential to become a separate asset class for market-savvy investors, arbitrageurs and speculators. Retail investors, who claim to understand the equity markets, may find commodities an unfathomable market. But commodities are easy to understand as far as fundamentals of demand and supply are concerned. Retail investors should understand the risks and advantages of trading in commodities futures before taking a leap. Historically, pricing in commodities futures has been less volatile compared with equity and bonds, thus providing an efficient portfolio diversification option. In fact, the size of the commodities markets in India is quite significant. Of the country's GDP of Rs 13, 20,730 crore (Rs 13,207.3 billion), commodities related (and dependent) industries constitute about 58 per cent. Currently, the various commodities across the country clock an annual turnover of Rs 1, 40,000 crore (Rs 1,400 billion). With the introduction of futures trading, the size of the commodities market grows many folds here on. Like any other market, the one for commodity futures plays a valuable role in information pooling and risk sharing. The market mediates between buyers and sellers of commodities, and facilitates decisions related to storage and consumption of commodities. In the process, they make the underlying market more liquid. A popular way to invest in commodities is through a futures contract, which is an agreement to buy or sell in the future a specific quantity of a commodity at a specific price. Futures are available on commodities such as crude oil, gold and natural gas, as well as agricultural products such as cattle or corn. Investing in a futures contract will require you to open up a new brokerage account, if you do not have a broker that also trades futures, and to fill out a form acknowledging that you understand the risks associated with futures trading.
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Each commodity contract requires a different minimum deposit, depending on the broker, and the value of your account will increase or decrease with the value of the contract. If the value of the contract goes down, you will be subject to a margin call and will be required to place more money into your account to keep the position open. Due to the huge amounts of leverage, small price movements can mean huge returns or losses, and a futures account can be wiped out or doubled in a matter of minutes. Most futures contracts will also have options associated with them. Options on futures contracts still allow you to invest in the futures contract, but limit your loss to the cost of the option. Options are derivatives and usually do not move point-forpoint with the futures contract.
Exchange-Traded Funds and Exchange-Traded Notes:

Exchange-traded funds (ETFs) and exchange-traded notes (ETNs), which trade like stocks, allow investors to participate in commodity price fluctuations without investing directly in futures contracts. Commodity ETFs usually track the price of a particular commodity or group of commodities that comprise an index by using futures contracts, although a few back the ETF with the actual commodity held in storage. ETNs are unsecured debt designed to mimic the price fluctuation of a particular commodity or commodity index, and are backed by the issuer. A special brokerage account is not required to invest in ETFs or ETNs.
Advantages:

Because they trade like stocks, there are no management or redemption fees to worry about. They provide an easy way to participate in the price fluctuation of a commodity or basket of commodities.
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4. Rituals of the Investor

The Investor has to start by selecting the correct exchange market for trading in commodity futures. The various steps involved are as follows. 1. Selecting Exchange-You have three options - the National Commodity and Derivative Exchange, the Multi Commodity Exchange of India Ltd and the National Multi Commodity Exchange of India Ltd. All three have electronic trading and settlement systems and a national presence.
2. Choose the broker-Several already-established equity brokers have sought membership with NCDEX and MCX. The likes of Refco Sify Securities, SSKI (Sharekhan) and ICICI commtrade (ICICIdirect), ISJ Comdesk (ISJ Securities) and Sunidhi Consultancy are already offering commodity futures services. Some of them also offer trading through Internet just like the way they offer equities. You can also get a list of more members from the respective exchanges and decide upon the broker you want to choose from.
3. Minimum investment-You can have an amount as low as Rs 5,000. All you need is money for margins payable upfront to exchanges through brokers. The margins range from 5-10 per cent of the value of the commodity contract. While you can start off trading at Rs 5,000 with ISJ Commtrade other brokers have different packages for clients. For trading in bullion, that is, gold and silver, the minimum amount required is Rs 650 and Rs 950 for on the current price of approximately Rs 65, 00 for gold for one trading unit (10 gm) and about Rs 9,500 for silver (one kg). The prices and trading lots in agricultural commodities vary from exchange to exchange (in kg, quintals or tonnes), but again the minimum funds required to begin will be approximately Rs 5,000.
4. Delivery or settle in cash-You can do both. All the exchanges have both systems - cash and delivery mechanisms. The choice is yours. If you want your contract to be cash settled, you have to indicate at the time of placing the order that you don't intend to deliver the item. If you plan to take or make delivery, you need to have the required warehouse receipts. The option to settle in cash or through delivery can be changed as many times as one wants till the last day of the expiry of the contract.
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5. Other requirements at broker level-You will have to enter into a normal account agreements with the broker. These include the procedure of the Know Your Client format that exist in equity trading and terms of conditions of the exchanges and broker. Besides you will need to give you details such as PAN no., bank account no, etc.
6. The brokerage and transaction charges-The brokerage charges range from 0.10-0.25 per cent of the contract value. Transaction charges range between Rs 6 and Rs 10 per Lakh/per contract. The brokerage will be different for different commodities. It will also differ based on trading transactions and delivery transactions. In case of a contract resulting in delivery, the brokerage can be 0.25 - 1 per cent of the contract value. The brokerage cannot exceed the maximum limit specified by the exchanges.
7. Information on commodities-Daily financial newspapers carry spot prices and relevant news and articles on most commodities. Besides, there are specialised magazines on agricultural commodities and metals available for subscription. Brokers also provide research and analysis support. But the information easiest to access is from websites. Though many websites are subscription-based, a few also offer information for free. You can surf the web and narrow down you search.
8. The regulator-The exchanges are regulated by the Forward Markets Commission. Unlike the equity markets, brokers don't need to register themselves with the regulator. The FMC deals with exchange administration and will seek to inspect the books of brokers only if foul practices are suspected or if the exchanges themselves fail to take action. In a sense, therefore, the commodity exchanges are more selfregulating than stock exchanges. But this could change if retail participation in commodities grows substantially.
9. Players in commodity derivatives-The commodities market will have three broad categories of market participants apart from brokers and the exchange administration - hedgers, speculators and arbitrageurs. Brokers will intermediate facilitating hedgers and speculators. Hedgers are essentially players with an underlying
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risk in a commodity - they may be either producers or consumers who want to transfer the price-risk onto the market. Producer-hedgers are those who want to mitigate the risk of prices declining by the time they actually produce their commodity for sale in the market; consumer hedgers would want to do the opposite. For example, if you are a jewellery company with export orders at fixed prices, you might want to buy gold futures to lock into current prices. Investors and traders wanting to benefit or profit from price variations are essentially speculators. They serve as counterparties to hedgers and accept the risk offered by the hedgers in a bid to gain from favourable price changes.
10. Commodities that one can trade-Though the government has essentially made almost all commodities eligible for futures trading, the nationwide exchanges have earmarked only a select few for starters. While the NMCE has most major agricultural commodities and metals under its fold, the NCDEX, has a large number of agriculture, metal and energy commodities. MCX also offers many commodities for futures trading.
11. Sales tax on all trades and registration-If the trade is squared off no sales tax is applicable. The sales tax is applicable only in case of trade resulting into delivery. Normally it is the seller's responsibility to collect and pay sales tax. The sales tax is applicable at the place of delivery. Those who are willing to opt for physical delivery need to have sales tax registration number.
12. Additional margin/brokerage/charges- In case of delivery, the margin during the delivery period increases to 20-25 per cent of the contract value. The member/ broker will levy extra charges in case of trades resulting in delivery.
13. The stamp duty-As of now, there is no stamp duty applicable for commodity futures that have contract notes generated in electronic form. However, in case of delivery, the stamp duty will be applicable according to the prescribed laws of the state the investor trades in. This is applicable in similar fashion as in stock market.
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14. Margin is applicable in the commodities market-As in stocks, in commodities also the margin is calculated by (value at risk) VaR system. Normally it is between 5 per cent and 10 per cent of the contract value. The margin is different for each commodity. Just like in equities, in commodities also there is a system of initial margin and mark-to-market margin. The margin keeps changing depending on the change in price and volatility. 15. Circuit filters- the exchanges have circuit filters in place. The filters vary from commodity to commodity but the maximum individual commodity circuit filter is 6 per cent. The price of any commodity that fluctuates either way beyond its limit will immediately call for circuit breaker.
Conclusion:
There are a number of different types of commodity investments for novice and experienced traders to consider. Although commodity futures contracts provide the most direct way to participate in price movements, other types of investments with varying risk and investment profiles also provide exposure to the commodities markets. The key is to invest with the tool that works best for you.
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Chapter III- Commodity Exchange In India
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1. Meaning & Various Exchanges in India
A commodities exchange is an exchange where various commodities and derivatives products are traded. Most commodity markets across the world trade in agricultural products and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, pork bellies, oil, metals, etc.) and contracts based on them. These contracts can include spot prices, forwards, futures and options on futures. Other sophisticated products may include interest rates, environmental instruments, swaps, or ocean freight contracts. In the middle of 19th century in the United States, businessmen began organizing market forums to make the buying and selling of commodities easier. These central marketplaces provided a place for buyers and sellers to meet, set quality and quantity standards, and establish rules of business. In 1933, during the Great Depression, the Commodity Exchange, Inc., was established in New York through the merger of four small exchanges the National Metal Exchange, the Rubber Exchange of New York, the National Raw Silk Exchange, and the New York Hide Exchange. In India there are 25 recognised future exchanges, of which there are three national level multi-commodity exchanges. After a gap of almost three decades, Government of India has allowed forward transactions in commodities through Online Commodity Exchanges, a modification of traditional business known as Adhat and Vayda Vyapar to facilitate better risk coverage and delivery of commodities. Commodities exchanges usually trade futures contracts on commodities, such as trading contracts to receive something, say corn, in a certain month. A farmer raising corn can sell a future contract on his corn, which will not be harvested for several months, and guarantee the price he will be paid when he delivers; a breakfast cereal producer buys the contract now and guarantees the price will not go up when it is delivered. This protects the farmer from price drops and the buyer from price rises. Speculators and investors also buy and sell the futures contracts in attempt to make a profit and provide liquidity to the system. In simple parlance, a commodity exchange is defined as an association, or alternatively a company, as well as any corporate body that organizes trading in commodities. Earlier the commodity exchange was more like an open market place where traders would call their bids and purchase commodities. Their study of the commodity trading trend depended largely on the expected quantity of the annual produce and the potential demand for the produce. Based on this straightforward speculated forecast they would dictate the buying and selling prices of the commodities.
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However, in India things started going array and in the last century the India Government endorsed a ban on commodity trading. That was the end of the traditional commodity exchange. But then, forty years later, in the year 2003, the Government lifted this ban opening the doors for commodity trading once again. But, thing were different. The commodity exchange was opened with high-tech connectivity. Traders were not required to assemble in one place and shout out bids. Computerized systems brought in on line trading options. Every bid is recorded. Contracts are prepared in the form of print outs and delivery of contract happens in stipulated period. The Government also has a body that keeps a close vigil on the functioning of the commodity exchange. Though almost every commodity exchange in the world trades in their own specific list of commodities, yet there are certain categories that are common everywhere. These are the agricultural and metal produce. Commonly, the commodity exchange anywhere in the world prepares contracts for traders that would include the following vital information (however, the content does vary from country to country, depending on their domestic guidelines and regulations: Spots Forwards Futures Options on futures Interest rates Environmental instruments Swaps Ocean freight contracts
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2. The Various Commodities Exchanges:

a. b. c. d. e. National Commodity and Derivatives Exchange (NCDEX) Multi Commodity Exchange (MCX) National Multi Commodity Exchange of India (NMCE) National Board Of Trade (NBOT) Ace Derivatives & Commodity Exchange (ACE)
a. National Commodity and Derivatives Exchange (NCDEX)

National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity exchange based in India. It was incorporated as a private limited company incorporated on 23 April 2003 under the Companies Act, 1956. It obtained its Certificate for Commencement of Business on 9 May 2003. It has commenced its operations on 15 December 2003. NCDEX is a closely held private company which is promoted by national level institutions and has an independent Board of Directors and professionals not having vested interest in commodity markets. NCDEX also offers as an information product, an agricultural commodity index. This is a composite index, called NCDEXAGRI that convers 20 commodities currently being offered for trading by NCDEX. This is a spot-price based index. NCDEX also offers as an information product, the index futures, called FUTEXAGRI. This is essentially a what-if index. It
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indicates that if futures on the index could be traded, then the current FUTEXAGRI value should be the no-arbitrage value for the index futures. However, indexes and index futures are not allowed to be traded under the current regulatory structure. Hence, these are only available for information, as of now NCDEX currently facilitates trading of 57 commodities.
b. Multi Commodity Exchange (MCX):

Multi Commodity Exchange (MCX) is an independent commodity exchange based in India. It was established in 2003 and is based in Mumbai. The turnover of the exchange for the fiscal year 2009 was US$ 1.24 trillion, and in terms of contracts traded, it was in 2009 the world's sixth largest commodity exchange. ([1]) MCX offers futures trading in bullion, ferrous and non-ferrous metals, energy, and a number of agricultural commodities (mentha oil, cardamom, potatoes, palm oil and others). MCX has also set up in joint venture the MCX Stock Exchange. Earlier spin-offs from the company include the National Spot Exchange, an electronic spot exchange for bullion and agricultural commodities, and National Bulk Handling Corporation (NBHC) India's largest collateral management company which provides bulk storage and handling of agricultural products. The various commodities traded here are Metal, Bullion, Fibre, Energy, Plantations, Pulses, Petrochemicals, Oil & oilseeds and Cereals.
c. National Multi Commodity Exchange of India (NMCE)

NMCE started its operations on November 26, 2002, as the countrys first, online, dematerialized, multi-commodity exchange with nationwide reach. It not only revived futures trade electronically in the commodities in India after a gap of 41 years, but also integrated the centuries old commodity market with the latest technology. It is backed by compulsory delivery based settlement to ensure transparent and fair trade practices. NMCE offers electronic platform for future trading in plantation, spices, food grains, non-ferrous metals, oil seeds and their derivatives. NMCE has robust delivery mechanism making it the most suitable for the participants in the physical commodity markets. Public interest rather than commercial interest guide the functioning of the Exchange. It has also established fair and
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transparent rule-based procedures and demonstrated total commitment towards eliminating any conflicts of interest. NMCE follows best international risk management practices. Innovation is the way of life at NMCE. Government of India has granted it the status of a National Multi Commodity Exchange and it has now been incorporated as M/s. National Multi Commodity Exchange of India Limited. NMCE, managed and operated by professionals, is a Joint Venture of GAIC, Central Warehousing Corporation, NAFED, NIAM, Gujarat State Agricultural Marketing Board and Neptune Overseas Limited. GAIC was instrumental in obtaining crucial clearances from Gol and coordinating with the suppliers of computer and satellite communication hardware and software.
d. National Board Of Trade (NBOT):

National Board Of Trade Limited (NBOT) was incorporated on July 30, 1999 to offer integrated, state-of-the-art commodity futures exchange. It was incorporated to offer transparent and efficient trading platform to various market intermediaries in the commodity futures trade. Today NBOT is one of the fastest growing commodity exchanges recognized by the Government of India under the aegis of the Forward Markets Commission. Within a short span of seven years, NBOT has carved out a niche for itself in the commodities market. With a humble beginning of trading in February 2000 its average daily volume has reached a staggering 60,000 MTs (approx.) in terms of Soya oil. It has implemented the state-of-the-art technology and system for efficient handling of Trading, Margining, Clearing and Settlement in respect of all the transactions confirmed by the Exchange. The Board of directors, adorned by a galaxy of the most respectful personalities drawn from different categories of trade and commerce has been giving necessary impetus and thrust for setting up of the exchange and provide guidance for its proper functioning. NBOT has been constantly endeavouring to strengthen professionalism in the commodities futures market and to provide credible nation-wide trading facilities to market players in tune with the international standards. NBOT has been mandated to organize futures trading in the following commodities:

Soybean, its oil and cake; Rape/Mustard seed, their oil and cake; RBD Palm olein, Crude Palm Oil, CPO Refined and Crude Palm olein.
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e. Ace Derivatives & Commodity Exchange (ACE)

Ahmedabad Commodity Exchange, also known as ACE Derivatives and Commodity Exchange is India's fifth national commodities exchange, was launched on October 26, 2010. ACE's launch was the first time a regional Indian market was upgraded to a national market The all-electronic market is 51 percent owned by Kotak Mahindra Group, an Indian banking and financial services firm. Other investors include The Haryana State Cooperative Supply & Marketing Federation Ltd. (HAFED), a state cooperative service and marketing organization. Other investors include: Bank of Baroda, Corporation Bank and Union Bank. The exchange opened with 230 registered members. ACE offers futures trading in various commodity groups, such as agricultural products, bullion, base metals, and energy. The company provides an online multi-commodity platform; and clearing and settlement infrastructure that supports the process of trade intermediation, including registration of trades, settlement of contracts, and mitigation of counter-party risk. ACE Derivatives and Commodity Exchange Ltd. was formerly known as Ahmedabad Commodity Exchange Limited. The company was founded in 1952 and is based in Mumbai, India. Ace Derivatives and Commodity Exchange Limited is a screen based online derivatives exchange for commodities in India. Ace Commodity Exchange earlier known as Ahmedabad Commodity Exchange has been in existence for more than 5 decades in Commodity Business, bringing in the best and transparent Business Practices in the Indian commodity space. The Kotak group brings in more than 25 years of financial expertise and has pioneered many business practices existing in the financial services industry. With Ace, Kotak Group brings to the commodity market a new, state-of-the-art trading platform which combines the operational efficiency of global exchanges with deep domain expertise in each commodity vertical.
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Chapter IV- The Various Commodities Traded In India
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Introduction :
The modern commodity markets have their roots in the trading of agricultural products. While wheat and corn, cattle and pigs, were widely traded using standard instruments in the 19th century in the United States, other basic foodstuffs such as soybeans were only added quite recently in most markets. For a commodity market to be established there must be very broad consensus on the variations in the product that make it acceptable for one purpose or another. In fact, the size of the commodities markets in India is quite significant. Of the country's GDP of Rs 13, 20,730 Crores (Rs 13,207.3 billion), commodities related (and dependent) industries constitute about 58 per cent. Currently, the various commodities across the country clock an annual turnover of Rs 1, 40,000 Crores (Rs 1,400 billion). With the introduction of futures trading, the size of the commodities market grows many folds here on. Like any other market, the one for commodity futures plays a valuable role in information pooling and risk sharing. The market mediates between buyers and sellers of commodities, and facilitates decisions related to storage and consumption of commodities. In the process, they make the underlying market more liquid. World-over one will find that a market exists for almost all the commodities known to us. These commodities can be broadly classified into the following: 1. Cereals 2. Fibre 3. Plantation 4. Pulses 5. Spices 6. Energy 7. Bullion (Precious metals) 8. Industrial metals 9. Oil & Oil seeds 10. Petrochemicals. 11. Others
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1. Cereals :
Cereals are regarded as the staple diet of India. As far as the place cereals hold in the commodities exchange, it is generally regarded amongst the prime. This is because India is largely an agricultural country and apart from the local produce, it is one of the largest exporters of rice and wheat to the world. In commodities when one talks of cereals it refers to: a. b. c. d. e. Wheat Maize Rice Basmati Rice Sharbati Rice
Wheat :
It is in fact the most consumed cereal grain in the world, as it is the basic ingredient of all baked products. In recent years the world produces between 560 and 580 Million tons, annually. India is placed amongst the four largest wheat producers in the world, the others being China, USA and European Union (EU). India also finds a distinctive place amongst the largest wheat consumers in the world, which also includes countries such as EU, China, Russia, USA and Pakistan. Indias annual wheat production averages between 65 and 75 Million, which amounts to approximately 35 percent of the countrys entire food grain production being 210-212 million tons.
Maize :
India is amongst the seven largest maize producing nations. It is a cereal grain that actually originated in the United States of America. It is in fact regarded as the prime cereal grain, globally, as 33.3 per cent of this grain provides nutrition to humans, and the remaining 66.6 per cent is nutritional fodder for animals. It is used as one of the essential raw materials to produce- Starch, Oil, Proteins, Food Sweeteners, Fuel, etc.
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Rice :
India is one of the world's largest producers of white rice, accounting for 20% of all world rice production. According to the global credit ratings agency CRISIL, India's rice exports are set to register a three-fold increase at 7 million tonnes in 2011-12 on growing output and weak production outlook in major exporting countries. The agency estimates India's share in global rice trade to triple to 21% in 2011-12 from 7% in 2010-11. It said, 'we expect India's rice exports to reach around 7 million tonnes in 2011-12, up from 2.2 million tonnes in 2011.
Basmati rice:
India is the largest producer and exporter of Basmati rice in the world. The annual production in the country is 10-15 lakh tons a year, of which around 2/3rd is exported. The remaining is consumed within the country. India, the largest cultivator and exporter of basmati rice, seeks new global markets as the Indias production for 2011-12 stands at 4.5 million tons. In 2010-11, the country exported 2.2 million tons of rice to more than 100 countries. Basmati rice has $1,100 per ton in international markets. The consumers of Indian Basmati Rice include US, UK, UAE, Iran, Kuwait and Europe. The countrys contributes almost 60% of the world output.
Sharbati Rice :
Sharbati Rice as the name suggest is actually sharbati in taste and contains required dietary fibers. The delectable aroma and scrumptious taste of Long Grain Sharbati Rice makes them foremost choice of customers. Global Sharbati rice production in the recent years has fluctuated between 375-400 million tons. Consumption at around 410 million tons has been above production in the recent years. Major importing nations of rice are West Asian countries and African countries. Apart from them countries like Japan, Malaysia, and Brazil also figures in top 10 importing countries.
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2. Fibre :
After cereals, the textile and clothing industry seems to hold a prominent place in the Indian economy. This includes: Manufacturing and production, Foreign exchange revenue, Employment provision. In the year 2005, the fibre market in India is known to have generated approximate revenue of Rs. 35,000-Crore, as a result of the 3100 Million kilos of yarn it produced that year. The country holds 17 per cent of the worlds share in cotton fibre export. The receiving nations primarily being China, Korea, Bangladesh, Egypt, Taiwan, Hong Kong, Mauritius, Japan, Israel, European Union and Turkey. The various Fibres traded are:a. b. c. d. Cotton Cotton Yarn Kapas Jute
a. Cotton :
Cotton is a soft fiber that grows around the seeds of the cotton plant. The fiber is most often spun into thread and used to make a soft, breathable textile, which is the most widely used natural-fiber cloth in clothing today. India is the third largest producer of cotton and its derivatives in the world. India has the maximum area under cotton cultivation estimating up to around 9.50 million tons i.e. 21% share in the world. A number of varieties of cotton are cultivated in the country like Bengal Deshi, V-797, Jayadhar, etc and also the cotton fibres are graded into three major grades i.e. Short, Medium and Elongated. The northern areas in the country provide with mostly short and medium staple cotton, central areas provide with long and medium staple cotton and the southern areas largely with long staple cotton. The quantity of production of cottonseeds in India is around 5.68 million tons.
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b. Cotton Yarn :
Cotton Yarn is a by product of cotton and is manufactured by processing cotton fibre. India is also biggest yarn exporter in world having global yarn export market share of 17%. India mainly exports to China, Korea Republic, Bangladesh, Egypt, Taiwan, Hong Kong, Turkey, Japan, Israel, European Union and Mauritius.
c. Kapas :
Kapas is the white fibrous substance covering the seed that is obtained from the cotton plant. India is the third largest producer of cotton in the world after China and USA accounting for about 14% of the world cotton production. The biggest cultivators of cotton are America, India, China, Egypt, Pakistan, Sudan and Eastern Europe, with China, US and India being the three largest producers of cotton. Among the consumers China leads the way being followed by India, Pakistan, US and Turkey. India is set to become number one producer and consumer of cotton.
d. Jute :
Jute is a natural fibre obtained as an extract from the bark of the jute plant that grows like any other organic crop. India is the largest producer of jute in the world, accounting for over 60% of the worlds production of jute. For over a century, India has been producing, and exporting jute and fibre products. Bihar and West Bengal account for 50% of the countrys output, while 7 other states grow jute. According to the Office of the Jute Commissioner, production of jute goods was 15.66 lakh tonnes in 2010-11. Manish Poddar, chairman, Indian Jute Mills Association, says raw jute production in 2011-12 is expected to be 120 lakh bales while consumption will be 100 lakh bales. The price will remain in the range of Rs 2,200-2,700 per quintal this year, he says.
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3. Plantation.
Being an agricultural nation essentially a lot of importance and stress is laid in the various sectors of the industry. In fact, the broader base of agriculture is divided into various sectors in the commodities exchange. One such sector is termed as plantations. Within this, the three primary plantations largely traded are:
a. b. c. d.
Areca Nut Cashew Kernel Rubber Coffee
a. Areca nut :
Areca nut is considered to be the prime commercial crop in this country. Basically this the areca nut palm grows out of this seed. Areca nut comprises of two types being: White Areca Nut (Supari) Red Areca Nut (Supari) Both the varieties are primarily used in what is known as the Ghutka industry, as well as for religious, social and cultural functions. It is also known for its medicinal value as is utilized as an ingredient in Ayurvedic and veterinary remedial mixtures. According to estimates rendered by the experts, about 10 Million people are employed in the areca nut in this country.
b. Cashew Kernels:
Cashew kernels are number three in the world of edible tree nuts. Cashew trade picked up momentum somewhere in the middle of the 20th century. The cashew is traded in varied grades that are determined by the size, color and other defined quality parameters. India is ranked as the largest exporter, producer and processor of cashew, in the world. Cashew nut rates in the Palasa Kasibugga current market have risen by over 20 % for the duration of this period as opposed to the past season. That is mainly
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because of deficiency in natural product from both local and global markets. Cashew nuts are usually obtainable from April till June 15 in local market and for the duration of March and April in the worldwide market place.
c. Rubber :
Natural rubber, also called India rubber or caoutchouc, is an elastomer (an elastic hydrocarbon polymer) that was originally derived from latex, a milky colloid produced by some plants. Natural rubber is used extensively in many applications and products, as is synthetic rubber. It is normally very stretchy and flexible and extremely waterproof. Natural Rubber is generally processed and sold in the following forms:- sheets, crepes, blocks, preserved latex concentrates.
However in India rubber is classified as: RSS 1, RSS 2, RSS 3, RSS 4, RSS 5, and ISNR. India is known to produce an estimated 6 to 7 Lakh tons of rubber, per annum.
d. Coffee :
Coffee is one of the largest traded commodities in the world. Coffee is broadly divided into two Arabica and Robusta. Coffee Board has projected decline of 15-18 per cent Coffee exports for the current financial year and has said that the export may fall to 2.4-2.5 lakh tonnes from 2.94 lakh tonnes in the previous year, mainly due to sluggish demand from the financial crisis in Europe, a major importer of almost two thirds of Indian exports.
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4. Pulses
They are a part of the staple diet of India. It is an important food-type as it has the highest protein content in comparison to the other foods consumed. The pulses that are listed in the commodities exchange are: Chana Masur Tur Urad Yellow Peas
a. Chana :
Chickpea or chana is a very important pulse crop that grows as a seed of a plant. This light brown coloured pulse is considered to be a good source of protein and is also called by the name of Garbanzo beans. Chana is used as an edible seed and is also used for making flour throughout the globe. Having a capacity to stand in drought conditions, this crop doesnt have the requirement of being fed with nitrogen fertilizers. There are two
types of the Chana pulses: Desi Chana & Kabuli Chana.
b. Masur :
Lentil, known as masur in India, is regarded as the oldest of all the legume grains to be plated here According to expert estimates India produces approximately 40 Lakh tons of masur, annually, contributing to a staggering 25% of the aggregate world production. India is the largest producer of masur accounting for nearly 25 percent of the global output. Major centres of masur cultivation are Uttar Pradesh, Madhya Pradesh and Bihar. West Bengal, Rajasthan, Haryana, Punjab and Assam also contribute to the countrys masur production
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c. Pigeon Pea :
Tur or Pigeon Pea is another pulse crop known for its rich nutritional value and wide use across many countries in the world. Tur believed to be a native of India spread to other regions in Asia and is currently cultivated in nearly 25 countries. It is also known as red gram, Congo Pea, Gungo pea etc. India is the largest producer accounting for more than 80 percent in area as well as total production in the world. The countrys tur produce ranges between 2.5 to 3 Million tons, every yearThe main centres of tur output in India are Maharashtra, Uttar Pradesh, Karnataka, Madhya Pradesh and Gujarat. Tur contributes nearly 20 percent of Indias total pulses crop production of 12-15 million tons per year. The yield in India is between 600-1,200 kg per hectare. Tur is cultivated between June-September period and arrival of fresh crop begins from October. India also imports around 400,000-500,000 ton of tur per year. The main source for import is Myanmar.
d. Urad :
It is one of the most important pulses used in preparing south Indian rice dishes, and also blended into wheat to make the Indian breads consumed with the main meal. Per annum, India is known to produce approximately 1.4 Million tons of urad. Yet, it needs to import about the same amount to meet up to its domestic demand requirements.
e. Yellow Peas :
Yellow Peas, also known as Dry Peas, are one of the most widely used pulse crops in the world. India is rated as the fourth largest producer of Yellow Peas in the world with an output of nearly 800,000 tons per year. In spite of it large scale production of yellow peas, India needs to import this pulse from Canada, Australia, Myanmar and France.
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5. Spices :
Centuries ago foreigners invaded India to plunder her for her riches. And one of her wealth has been the spices she reaps. Yes, India has been known for her produce of spices, which is also one of the primary products traded in the commodity market. Amongst all the spices grown here, those largely traded on the exchange are: a. b. c. d. e. f. Cardamom Cumin seed (Jeera) Pepper Red Chilli Turmeric Coriander
a. Cardamom :
Cardamom is grown in Kerala, Tamil Nadu and Karnataka. It is the dried fruit of an herbaceous perennial plant. It is termed as the Queen of Spices. This is because it is regarded as the most exotic of all spices. On an average, India produces approximately 11,600 Million tons of this spice, annually. Of its produce almost 90 per cent is consumed domestically, and the rest is exported to Saudi Arabia and Japan.
b. Cumin Seeds :
In India cumin seed is known as jeera. It is a popular spice with medicinal or clinical value. Apart from adding to the taste of cooked meals it is also used consumed as: A cure for stomach aches, a diuretic, a stimulant, an astringent, an antispasmodic. India is regarded as the largest producer of jeera, in the world. It holds the same status as a consumer. Annually, experts estimate that the country produces an average of 1.5 Lakh metric tons of this spice.
c. Pepper :
India is known to produce an average of 70,000 tons of pepper, per year. The country exports on an average 18,000 to 20,000 tons of pepper every year. This
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fluctuates depending on the worlds demand. Latest reports from Spice Board of India indicates the likely Pepper exports for the period April-Sept 2011 have risen by 22% to 11250 MT in 2011 from 9250 MT in 2010 same period.
d. Red Chilli :
Though the red chillies are believed to have originated in South America, yet India is considered to be the largest producer of this spice. It is also the worlds biggest red chilli consumer. According to latest data released by the Andhra Pradesh Agriculture Department, chilli acreage in the state declined 6.5 percent on year to near 36771 ha.
e. Turmeric :
The main quality of turmeric is called as Rajapuri which is produced in Sangli, Maharashtra. Masala manufacturers mainly use it due to its saffron colour. India accounts for 60 % of world exports. The main growing states in India are Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra and Kerala.
f. Coriander :
Coriander is used mainly in food products and some part of it is also used in many medicines. Rajasthan is the largest coriander producing state in India. At NCDEX coriander December contract is trading at Rs.4026 per quintal, higher by 2.46 per cent on 13:45 IST against the previous close.
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6. Energy:
Energy markets are those commodities markets that deal specifically with the trade and supply of energy. This market includes: a. b. c. d. e. Brent crude oil Crude oil Furnace oil M E sour Crude Oil Natural Gas
a. Brent Crude Oil : This oil is described as a sweet crude oil rigged from the North Sea. In terms of weight it is comparatively lighter than al other forms of crude oil. The Brent crude oil is considered a benchmark, across the globe, which is used to decide the price of this form of energy not only in Europe, but also other parts of the world. India is one of the largest buyers of this particular crude oil. Brent crude oil is a global benchmark for other grades and is widely used to determine crude oil prices in Europe and in other parts of the world. India ranks among the top 10 largest oilconsuming countries. Oil accounts for about 30 per cent of India's total energy consumption. The country's total oil consumption is about 2.2 million barrels per day. India imports about 70 per cent of its total oil consumption and it makes no exports.
b. Crude Oil : This oil is generally defined as a blend of the hydrocarbons that are present in the liquid form within the natural underground reservoirs. It is slated that oil and gas, together make up 60 per cent of the total world's major consumption of energy. Theyre prices are affected by fluctuation in the price of crude oil. India imports 2.3 million barrels/day. India currently has an estimated quantity of 5.4 billion barrels of oil reserves out of which it produces around 0.8 million barrels per day. At this production level, the oil reserves in India would last for around 29 years. The major oil reserves of the country are situated at
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Mumbai high (Mumbai) Upper Assam (Assam) Cambay (Gujarat) Krishna-Godavari basin (Andhra Pradesh) Cauvery basin (Tamil Nadu) Naga land Arunachal Pradesh
The largest crude oil producing oilfield is the Mumbai high field that produces around 260000 barrels per day. Among these production centres, major share of production i.e. 2/3rd share is bagged by the offshore reserves as compared to onshore reserves. The refining capacity of crude oil in India is over 2.1 million barrels per day. The country imports over 1.5 million barrels per day that place it at the 9th position among the largest importers of the world.

Indian Oil Corporation (Public sector) Oil and Natural Gas Corporation (Public sector) Reliance India Ltd (Private sector) Essar Oil Refinery (Private sector) Bharat Petroleum Corporation Ltd (Public sector) Hindustan Petroleum Corporation Ltd (Public sector) Mangalore Refineries and Petrochemicals Ltd (Public sector)
c. Furnace Oil : This Oil is commonly used as an industrial fuel. It is described as a dark viscous residual fuel. Globally the furnace oil is better known as fuel oil. Bunker fuel, furnace oil. . In India, fuel oil is known and traded as furnace oil. India is blessed with ample natural resources and due to this reason, is known to be one of the fastest developing countries in the world. Furnace oil helps in the growth of the countrys industries as it powers the transportation network and forms the base of various Indian industries. The figures of production of furnace oil in India in the year 2009-10 hovered around 8.74 million metric tons. The public sector dominates the furnace oil production in the country and satisfies most of the domestic demand in the country. India had a total consumption demand of around 8.03 million metric tons in context of furnace oil.
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d. M E sour Crude Oil : The Middle East sour crude oil is the term given to the crude oil provided by the Middle Eastern nations, which account for the largest energy production in the world. In India there are various factors that influence the fuel prices demanded and supplied:

The current scenario as per demand-supply requirement Weather & Seasonal cycle The general manufacturing scenario Global demand mainly from developing nations Fluctuations in the Dollar rate Stocks trading fluctuations Oil price announcements.
In fact, India is placed on the list of the ten prime countries that consume maximum energy in the form of oil. The country imports approximately 70 per cent of the aggregate domestic consumption, with no contribution in the export sector. In spite of this the country does go through a shortage of oil. This causes an increase in energy import, each year.
e. Natural Gas : Natural Gas, touted as the clean fuel of 21st century, is fast emerging as a major energy source all over the world. Yet another fossil fuel and often found in oil fields and coal beds natural gas is estimated to contribute around 26% of global energy consumption by 2030. Its consumption is expected to increase from 95 trillion cubic feet in 2003 to 182 trillion cubic feet in 2030.Nearly three quarter of the total global natural gas reserves are located in the West Asian and Eurasia regions. Iran, Qatar and Russia accounts for nearly 58% of global natural gas reserve In India, the main producers of natural gas are Oil & Natural Gas Corporation Ltd. (ONGC), Oil India Limited (OIL) and JVs of Tapti, Panna-Mukta and Ravva. Under the Production Sharing Contracts, private parties from some of the fields are also producing gas. Most of the production of gas comes from the Western offshore area. The on-shore fields in Assam, Andhra Pradesh and Gujarat States are other major producers of gas. Smaller quantities of gas are also produced in Tripura, Tamil Nadu and Rajasthan States.
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7. Bullion (Precious Metals):

Precious metals in bulk form are known as bullion and are traded on commodity markets.
a. Gold bullion:
Gold futures for December delivery wilted by $9.70 or 0.6% to settle at $1,577.20 an ounce after trading as high as $1,596.50 and as low as $1,562.50 an ounce on the Comex division of the New York Mercantile Exchange, whereas the spot gold prices gained $16.10 to $1,586.70 an ounce. Investors who prefer to own physical Gold that they can see and touch have multiple ways to achieve that comfort level. But when stacking up the choices, bullion appears to have the edge over coins for investors who also think about selling as much as acquiring.
b. Silver Bullion:
Silver is a very ductile and malleable metal used for thousands of years for ornaments and utensils, for trade, and as the basis for many monetary systems. Its value as a precious metal was long considered second only to gold. Silver prices were trading higher in major metros in India on Friday 16th December. In Mumbai market, pure silver (999purity) was quoting up Rs 335 at Rs 53935 and in Delhi market it was quoting up Rs 700 at Rs 53300.
c. Diamond Bullion :
Diamonds are a crystalline form of carbon that acquires lustrous form under vast temperature and pressure conditions. Indian diamonds have always attracted the world. Indias tryst with the precious stones dates back to at least 2000 years The US is Indias most lucrative export market. Since 2006, India gained unenviable position when the Bush administration passed the US Anti-Money Laundering (AML) and Anti-Terrorist Financing (CFT) Jewellery Rule, which requires, among other things, retailers to implement an AML/CFT programme, unless
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they purchase only from domestic US parties. The smart Indian businessmen already had more than 4,000 offices outside India and 50 per cent of them are located in US. This turned out to be a big setback for businessmen from Israel and Belgium, who used to operate from their own countries.
d. Palladium :
Futures contracts on palladium are actively traded on the NYMEX Exchange. Palladium is the other major metal of the platinum group. It is mined with platinum, and resembles it in many respects; Palladium is used as an investment. Palladium price peaked near US$1,100 per troy ounce in January 2010 (approximately US$1300 in 2007) driven mainly on speculation of the catalytic converter demand from in the automobile industry. As of July 2008, palladiums prices are approximately US$381 per oz t. Available palladium coins include the Canadian Maple Leaf and the Chinese Panda.
e. Platinum :
Platinum is considered one of the finest of all jewellery metals and one of the most precious too. Platinum sales across India have gone up as many upmarket jewellery stores are selling platinum like hot cakes. Platinum has become a status symbol for many weddings. According to the Bombay Bullion Association, India consumed around 940 Kgs of platinum metal in the fiscal year 2008-09 & platinum jewellery demand rose 50 per cent in this year. The white metal recorded a marginal 15 per cent surge to Rs 47,400 per 10g in the past year. Gold, the most preferred precious metal for every occasion in India, recorded a price escalation of 31 per cent, to Rs 22,470 per 10g.
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8. Industrial Metals :
The primary metals that are an essential part of the commodities market not only in India, but the world over are:
a. b. c. d. e. f. g. h.
Aluminium Copper Lead Nickel Sponge Iron Steel Tin Zinc
a. Aluminium:
Aluminium is the third most abundant element in the Earth's crust. India has emerged as a net exporter of aluminium, on competitive terms. Government monopoly, in terms of aluminium production, removal of price and distribution control over aluminium, has been diluted in favour of private sector.
b. Copper:
India is estimated to produce approximately 4 Lakh tons of copper, which is said to amount to 3 per cent of the worlds copper produce. In fact, according to the experts the country is leading towards becoming an exporter, from being an importer of this metal. The red metal prices also faced pressure from a stronger dollar while reports that Euro-zone construction activity fell 1.4% in October, the third straight monthly drop, too undermined sentiments.
c. Lead:
Lead comes under heavy metals and highly used to protect metals from corrosion. Lead is use to make building material and bullets. It has very low potential growth for long term investment and investors prefer short term investment in lead.
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The lead production in the country is estimated to be up to the tune of about 82,000 tons. However, this is mainly from its secondary sources. The demand for lead in India is to the tune of approximately 150,000 tons. The main reason for a limitation on the lead production in the country is the fact that there is a relative scarcity of lead ore reserves. India imports its lead supply from China, Korea and Australia.
d. Nickel:
Nickel is the anti corrosion resistant and used to coat coins & metals. Investors are glad to invest in Nickel for long term because it has the potential to grow over period of time. India does not have any history related to the metal nickel. It does not have any resources nor does it indulges in the mine as well as plant production of the metal. But as one of the fastest developing nations of the world, Indian demand for stainless steel and consequently nickel has been rising at a high rate.
e. Sponge Iron:
Sponge Iron is mainly used as a raw material for speciality steel as well as substitute for scrap. Made from iron ore, sponge iron in itself is not used. It is further processed to make wrought iron. The rise in price of scrap and other factors have led to the increase in the use of sponge iron for making high quality steel. India, Venezuela, Iran and Mexico are the four largest producers of sponge iron with about 16%, 14%, 11% and 11% share of world's total production.
f. Steel:
Steel is one of the symbols of modern industrial civilization. The Eiffel Tower in Paris represents the strides made by human beings to harness the potential of iron and steel for rapid development. Steel is considered as the most important industrial raw material in construction and engineering industries. Global production of steel is 20 times higher than that of all non-ferrous metals put together. India is the eighth largest crude steel producer in the world and accounts for more than 3 percent of the total global output. In 2005-06 (Apr-Mar), Indias total steel output is estimated to be around 42.63 million tons.
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g. Tin :
India's tin production is a meagre 10 tons. India meets most of her tin requirements through imports. It is estimated that India imports around 4000 tons of tin and its alloys (including scrap). Tinplate packaging is picking up in the country. The market size of tin plate packaging is estimated to be around 3, 00,000 tons. In India, tin plate is mainly used for packaging in three categories: edible oil & cashew, processed food and non-food. China is the leading consumer of tin in the world. In 2007, the demand for tin is expected to rise by 384,000 ton. Tin is mainly used in packaging both food and non-food sectors in the country.
h. Zinc:
Zinc is the 24th most abundant element in the Earth's crust and is the fourth most common metal in use, trailing only iron, aluminium, and copper with an annual production of about 11 million tons. About 70% of the world's zinc originates from mining, while the remaining 30% comes from recycling secondary zinc. Commercially pure zinc is known as Special High Grade and is 99.995% pure
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9. Oil & Oil Seeds :

In India, the demand for edible oil increases during the festival season due to higher consumption of sweets and snacks. The combination of seven oil and oilseeds - castor seed, cotton seed oil cake, soya bean, refined soya oil, mustard seed, mustard oil and crude palm oil - gave a 3.37 per cent return during January-June 2011. There are around 21 oil and oilseed commodities in India. Some can be listed as below:-
a. b. c. d. e. f. g. h. i.
Castor Seeds & Castor Oil Cotton Seed & Cotton Seed Oil Ground Nut & Groundnut Oil Linseed & Linseed Oil Mustard Seed & Mustard seed oil Soya bean & Soybean Oil Sesame Seed & Oil Sunflower Seed & Oil Coconut Oil & Copra.
a. Castor seeds & Castor Oil :

Castor oil is commonly is utilized in the form of a raw material. Castor seed is produced mainly in 3 states in India - Gujarat, Rajasthan and Andhra Pradesh. After extraction from seed, the oil produced is mainly exported and its cake is used as manure which is used in tea gardens. The oil is used to make lubricants and also used for medical purpose. India produces 9-10 Lakh tonnes castor seeds annually. India is also the biggest exporter of castor oil. Its share of global trade in the commodity is 70 per cent. Castor oil, extracted from castor seed, and its derivatives have vast applications in the manufacturing of soaps, lubricants, hydraulic and brake fluids, paints, dyes, coatings, inks, cold-resistant plastics, waxes and polishes, nylon, pharmaceuticals and perfumes. Helped by global demand, the price of castor seed rose 14 per cent, or Rs 567/-, to Rs 4,594/- per quintal during January-June 2011. On July 28, it was Rs 5,115 per quintal. India exports two grades of castor oil special grade castor oil and castor oil.
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b. Cotton Seed & Cotton Seed Oil.

Amongst all the oilseeds produced in India, cottonseed is considered the oldest and most traditional. According to the experts approximately 80 per cent of the cottonseed is surplus production, after being used to make the cotton bales, and is crushed to make oil. The 20 per cent that remains is used cattle fodder. The marketing
season starts from October, after which exports pick up and continue till April. Supported by large exports, the prices of cotton seed oil cake soared over 22 per cent to Rs 1,178 per quintal during the first half of calendar year 2011.
The Cotton Association of India (CAI) has estimated the cotton production in 2011-12 to be at 363.75 lakh bales of 170 kg each compared to last year's production of 332.25 lakh bales on the back of favourable monsoon. The monsoon has been, by and large, normal throughout the cotton belt thereby pushing up the possibility of better yields. This year the crop is likely to surpass the acreage benchmark of 12 million hectares, a 10 per cent rise from the last year. CAI issued the forecast based on survey conducted by various traders, farmers and exporters by field supervisions. From the major producers, Maharashtra is likely to see three-lakhbale rise in its production to 85 lakh bales while Andhra Pradesh's output is pegged at 63 lakh bales up by 12 lakh bales from its previous year's production of 55 lakh bales.
c. Ground Nut & Groundnut Oil: Groundnut or peanut is one of the important oilseeds in the world today. Known for its ability to survive in less favourable agro-climatic conditions, peanuts have above 40% oil content and around 25 % protein. Used as edible oil in many parts of world, the oil cake derived after extracting oil is also used as cattle feed. India is rated as the third largest producer of groundnut in the world with annual production of over 5-6 million tons. Gujarat, Andhra Prrdesh, Tamil Nadu and Karnataka are the leading producers in the country and accounts for nearly 75% of the total output. Groundnut contributes to nearly 25% of total oil seed production in the country. Nearly 75% output occurs in June-September and the rest during November-March known as khariff and rabi seasons respectively. The Indian production and area covered is largely concentrated in the above-mentioned states. Today, groundnut has a share of approximately 25% in the
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total Indian oilseed production. But this share is constantly reducing since India got independent, as it was around 70% in 1950s.
d. Linseed & Linseed Oil:

Linseed is an important oilseed and fibre crop grown both for its seed as well as fibre which is used for the manufacture of linen. The seed contains a good percentage of oil varying from 33 to 47 per cent in different varieties. The oil is edible and also due to its quick drying property is used for the preparation of paints, varnishes, printing ink, oilcloth, soap, patent leather, and waterproof fabrics.. India is considered as the third largest producer of linseed in the world. India linseed is mainly cultivated as rabi crop in with October-November being the main sowing season. February-April is the main harvesting season in the country. Madhya Pradesh is the leading producer of the crop, which is broadly divided into two categories- peninsular and alluvial types according to the root formations. Oil markets in Indore, Kanpur, Agra and Gwalior are the main trading centres of linseed oil. Paint and allied industries are the main consumers of linseed oil accounting for nearly 70% of the total consumption. West Bengal, Maharashtra, Delhi and Uttar Pradesh are the main centres of linseed oil consumption in the country.
e. Mustard Seed & Mustard seed oil :

According to estimates the country produces approximately 1-2 Million tons of mustard or rapeseed oil. In fact, in this type of oil and oilseeds India seems to be comfortably seated in the areas of self-sufficiency. It neither imports, nor exports this oil. Rajasthan and Uttar Pradesh produce the major share of rape/mustard contributing to over 50% of the total Indian produce, which stands at an average of 5 million tons. The production of rape/mustard oil cake in India was 3.4 million tons and of rape/mustard oil was around 1.5 million tons in this year. Rape/Mustard has been an important crop to India for a long period of time. At an average India produces around 5 million tones of rape/mustard annually. It stands at the 3rd position in the list of rape/mustard producing countries contributing around 11% of the worlds total production. Also it is the third largest producer of mustard/ rape oil in the world. Rajasthan is the leading mustard/rape producing state in India.
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f. Soy bean & Soybean Oil :

The annual production of soybean in India is around 7 million tons. Madhya Pradesh being the leading producing state of India contributes to around 75% of the total Indian production and is also called the soybean bowl in India. Likewise soybeans, the rate of production of soy meal in India is on an increasing level with a production figure of 5 million tons. Soy oil is considered as one of the most important edible oil in the country. Indian production of soy oil is around 1 million tons annually and it accounts for about 18% of total consumption of oils in the country. India is known to produce approximately1 Million ton of soy oil, annually. However, to meet its demand requirements the nation imports approximately 1.5 Million tons of this oil. The price fluctuations of soy oil are highly volatile and are largely dependent on the global trends.
g. Sesame seed & Oil :

Sesame seed is an important ingredient in culinary traditions of many countries, especially the countries in West Asia. Sesame seed carry 55% of oil content. Sesame oil is used for cooking, cosmetics, paints and lubricants. The byproduct obtained after extracting oil is used as feed for livestock. Global output of sesame seed is estimated at around 3 million ton per year with India and China dominating production. Global sesame output occurs mainly around few countries in Asia and Africa. Global sesame seed trade is estimated 500,000-600,000 ton per year. India had been a dominant and one of the oldest producers of sesame in the world. Sesame seed provides a traditional source of oil for many communities in India. The country produces around 680000 metric tons of sesame seed annually and stands at the second place in terms of production. The country also ranks 1st in the context of the area covered under the cultivation of the crop. The states, Gujarat and West Bengal account for the maximum production in the country producing 2 lakh tons sesame seeds every year. India accounts for nearly 30% of global output and plays an important role in global sesame business. Mainly cultivated in Maharashtra, Rajasthan, Gujarat, Madhya Pradesh, Karnataka, Orissa and West Bengal, sesame seeds come in three varieties in the country: yellowish, red and black seeds.
h. Sunflower Seed & Oil :

Sunflower was introduced in India as an oilseed crop for the first time in 1969. Sunflower is a drought tolerant crop due to its deep tap root, that make it the best substitute to all rain fed commercial crop. Sunflower seed is the seed of the
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sunflower. The term "sunflower seed" is actually a misnomer when applied to the "seed" in its pericarp (hull). In India, sunflower is grown both in the kharif and rabi season. However, around 70% of the crop is produced in the rabi (November March) season. The kharif (June September) period accounts for less than 30% of the crop currently. The sunflower seed production ranges between 10-15 lakh tons. The major producers are Karnataka (35%), Andhra Pradesh (30%), Maharashtra (15%), Punjab (4%) and Haryana (4%). The average yield of oil obtained by mechanical extraction from sunflower seed is 35 % from unshelled seed of normal moisture content (9%) and 42.5% by pre-press and solvent extraction. Crude oil to refined oil conversion rate is 95%.
i. Coconut Oil & Copra :

Coconut has been a part of the Indian culture and has been produced in India since a very long time. Copra is the dried meat, or kernel, of the coconut. Making copra removing the shell, breaking up, drying usually is done where the palms grow. Today, large plantations with integrated operations have appeared, but in former years copra was collected by traders going from island to island and port to port in the Pacific Ocean.. India stands third in the list of the maximum coconut producing countries of the world. India accounts for nearly 20% of global coconut output. Kerala, Tamil Nadu, Andhra Pradesh and Maharashtra are leading producers of coconut in the country. Kerala and Tamil Nadu are the major centres of coconut oil and copra in the country. The price of coconut oil is shaped by variations in production, global demand and supply situation and price of other vegetable oils. In the context of coconut productivity, Maharashtra leaves all its competitors behind with a rate of 914548 nuts per hectare.
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10. Petrochemicals.
The petrochemical industry in India has been one of the fastest growing industries in the country. Since the beginning, the Indian petrochemical industry has shown an enviable growth rate. This industry also contributes largely to the economy of the country and the growth and development of manufacturing industry as well. It provides the foundation for manufacturing industries like construction, packaging, pharmaceuticals, agriculture, textiles etc. The various petrochemical commodity traded in India are High Density Polyethylene & Polypropylene.
a. High Density Polyethylene :

A widely used industrial raw material, High Density Polyethylene or HDPE belongs to the family of polymer products derived petroleum. Indian demand of polymers is expected to touch 10-12 million tons in 2010 with the country expected to emerge as the third largest consumer after US and China. Reliance, IPCL, Haldia Petrochemicals and GAIL are the leading producers in the country. The industry demand is expected to touch 12.4 million tons by 2010-11, becoming third largest consumer after US and China. The Indian government has considerably brought down the customs duty in the last few years. The GOI increased the foreign equity participation in the petrochemical industry to 51%. Foreign firms have been allowed to set up 100% owned companies in India in the plastics processing and other related sectors.
b. Polypropylene :
Polypropylene or PP is another versatile polymer developed in 1950s sharing much of the characteristics of its predecessor polyethylene. PP, much more robust than polyethylene, is used from the making of plastic bottles to furniture. India depends mainly on import of PP as it produces only around 200,000 tons per year. A projected growth rate of 10-12 percent per year in polymer consumption would make it imperative that India would depend on imports to a larger extent. PP is mainly used in sectors such as packaging, non-filament yarn and ropes ET.
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11. Others.
The other commodities traded are Guar Seeds, Sugar, Potato, Mentha Oil & Gur.
a. Guar Seeds :
India is the main producer of guar in the world. Main producing states of guar seed are Rajasthan and Haryana. Guar gum is the main product produced from guar apart from Churi and Korma. Nearly 75% of Gum is exported. Gum is mainly used in drilling purpose and it is also used in making Ice cream, bread, paste, powder etc. Last year, around 2.10 lakh tons gum was exported from India while this year export figure is expected to increase to 2.25 lakh tons. Domestic consumption is nearly 50000 ton per year.
b. Sugar :
India has been known as the original home of sugarcane and sugar. India is the second largest producer of sugar in the world after Brazil and produces more of cane sugar and not beet sugar. It produces approximately 22 million tons of sugar annually, with Maharashtra contributing over one-third of it. The production of sugarcane in India has increased during the last ten years and is still on an increasing trend. The productivity of sugarcane in the northern areas of the country is lower than the productivity in southern areas. In India, sugar is grown over 4 million hectares of land. India Government allocated 17.16 lakh tons of sugar for sale in the domestic market for the month of January. It includes 2.16 lakh tons levy sugar and 15 lakh tons of non-levy sugar. This quantity of 17.16 lakh tons is sufficient to meet the internal demand of sugar for the month of January, 2012.
c. Potato :
After wheat, rice and maize, potato is the most important food crop in the world. It is the fifth largest produced agricultural crop and the largest produced tuber and root crop in the world. India ranks third contributing around 7.5% to the worlds production. Production wise India has always remained in the top ten since last twenty years. Europe is the largest per capita consumer, followed by North America and Latin America.
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Exports of potatoes from India have been low and have been limited to neighbouring countries such as Nepal, Pakistan and Bangladesh. During 2009-10 India exported hardly 1 percent of its production. Within this, about 90% of the exports went to Pakistan, Nepal and Sri Lanka.
d. Mentha Oil :
The native Place of Mentha is Japan. So Mentha is also known as Japanese Mint. After Japan, its cultivation began in Argentina, Brazil and China. Then it started in India. India is the leader in its production as well as in its export. Total consumption of domestic as well as international market usually remains nearly 25,000 ton/year. During 2010, total availability is expected to remain nearly 27,000-28,000 ton which includes estimated production of nearly 20,000 ton and carry over stock of around 7,000-8,000 ton. With estimated total consumption of ~25000 tons which includes overseas and domestic demand, carry forward stock is likely to remain nearly 2,000-3,000 ton.
e. Jaggery :
Jaggery/Gur and khandsari are traditional Indian sweeteners, which are produced in addition to sugar. These are the natural mixture of sugar and molasses. Around 4 million hectares of land is under sugar cultivation in India. The production of sugarcane in the recent years has fluctuated between 230-300 million tons. The Indian Sugar industry is the second largest agro-processing industry in the country. India is the largest consumer and second largest producer of sugar in the world next to Brazil
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Chapter V- Commodity Trading In India
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1. Introduction: In the days gone by commodity trading was more unorganized, as all traders were required to a common place and call out bids. It all seemed like a network of noisy numbers flying from one end to another. Nonetheless, in spite of such an environment, no one ever complained about missing bids. In those days the buyer would study the quantity of annual produce of the commodities and the sellers would calculate the approximate demands. There was speculation and dictating of terms. This was primarily because there was no research and techniques of trading speculation. It was like going to any other market and bargaining for what is needed to be purchased and sold. However, commodity trading has seen a radical change with it shifting to an organized set up in the form of the commodity exchanges. Actually futures commodity trading was banned for over forty years in this country because of varied reasons. And when this ban was lifted a couple of years ago no one could imagine the volume of trading it has invited. Presently, the accumulative commodities derivatives trade value is estimated to have reached the equivalence of 66 per cent of the gross domestic product (GDP). The experts claim that if this upward trend continues then the trade value could equal the GDP in times to come, which is considered a positive trend for the economy. Today, where commodity trading system is concerned, first and foremost it is all computerized. Traders need not visit a commodity trading market to speculate. With on line commodity trading they could sit in the confines of their home or office and call the shots. With online commodity trading things have changed. Today one can carry out their trades from almost anywhere, which includes anywhere in the world. Yes, there are people living in different parts of the world doing online commodity trading with India. There are certain formalities that one is needed to go through to gain membership on the exchanges. To be able to indulge in online commodity trading, one essentially needs to be connected to the exchange directly or then a member of the exchange. There are a large number of brokers and brokerage firms that offer online trading of commodities. With this connection one is also trained in the process of making trades on line. As soon as one makes a trading request it is registered with the host trading party and the process of preparing the contract commences simultaneously. The trading host server also sends back an instant request to confirm the trade.
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To register oneself with any online commodity trading firm one is required to fill in an electronic form and mail it back. One is also required to make a certain payment to be able to begin trading. Once all the formalities are completed and company has accepted the payment then the trading can commence. There are a large number of people, who in spite of having fulltime jobs yet do online trading to earn additional income. There are also small time brokers who do trades for others, without actually running a full-fledged office. They trade on line for the clients.
2. Commodity Option Trading: Commodity option trading was introduced in India, as it has been devised as a tool that to a large extent could preserve the existing fixed-income commodity portfolio, in terms of its value. This way the risk of losses is minimized. Thus, according to experts options can be regarded as insurance, guarding the trader or investor against any unexpected reversed price fluctuations. And yet, if the price does unexpectedly does move in favour of the value of the portfolio then it provides flexibility to increase profits. So, in short commodity option trading is defined by many as a means to minimize losses and maximize profits, as the situation may arise. Some of the suggested benefits of commodity option trading are listed here: An option trade of any commodity provides the purchaser with the permission to trade a defined amount of the commodity, at a defined price, within a defined time period. The trader is not confined by any restrictions to exercise the option, as it lays at his discretion, completely. The loss incurred by the buyer of the commodity option, will always stand limited to the amount he invested in the commodity. The commodity option purchaser is never constricted in any which ways by the margin calls, which enables them to sustain their market position.
There are certain primary terminologies that those indulging in commodity option trading should be completely aware of. They are listed as follows:a. Call option: This implies the purchasers right to purchase a defined futures contract, at a price pre-decided and within a specified amount of time b. Put option: This implies that the buyer has a right to sell a defined futures contract, at a price pre-decided and within a specified amount of time c. The holder: This is the purchaser of the commodity option d. Premium: This is the amount paid by the option purchaser to the seller
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e. Strike price: This is pre-decided price of a futures contract, at which it can be traded bought or sold f. At-the-money: This is a situation that arises when the futures price is equal to, or almost equal to the strike price g. In-the-money: This is a situation that arises when the futures price exceeds the strike price. h. Out-of-the-money: This is a situation that arises when the futures price is lower than the strike price.
3. Commodity Broker: The commodities broker is defined as the individual who earns a fee or commission for his role as an agent preparing contracts and carrying out sales. The rate of commission charged by brokers is generally decided by the Government or the regulatory board that controls the exchanges. Though the maximum amount chargeable is determined, the broker can charge less, depending on the volume of trades. The commodities broker is required to pay a margin amount to the exchange board, which is pre-determined. The best part of being a commodities broker is that whether or not the trader or investor or whoever the client is earns or looses money, the broker will earn his commission. And this commission is not dependent on the clients profit or loss status.
The commodity trading broker is also responsible for ensuring that al paper work in terms of bills and contracts are in place. They just need to take signatures from their clients as and when required, as well as make deliveries in accordance. To become a member of the commodity exchange the broker or brokerage firm should have a net worth amounting to Rs. 50 Lakh. This sum has been determined by the Multi Commodity Exchange. When investors are required to select a commodity broker they should ideally keep certain aspects in mind to ensure that they are not being misled in any way. These factors include: a. b. c. d. e. f. g. h. The net worth of the broker of brokerage firm The clientele The number of franchises/branches The market credibility The references The kind of services provided back office functioning being most important Credit facility The research team
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4. Dematerialization Dematerialisation of commodities implies that these commodities are stored in Exchange-designated vaults/warehouses and the record of the ownership is in electronic form, just like trading in equity shares. The legal and beneficial owner of the goods gets a credit in his account electronically, which is similar to holding a pass book in the bank. Similarly, transfer of ownership against buy and sale is done from one account to the other, just like money transfer through a cheque. The depository keeps records of holding and transfers in electronic form. The opening of account and transfer instructions are carried out by the agents of the depository, called Depository Participants (D.Ps). Access to the demat account requires an internet password and a transaction password. Transfers or purchases of securities can then be initiated. Purchases and sales of securities on the demat account are automatically made once transactions are confirmed and completed. The term "demat", in India, refers to a dematerialised account for individual Indian citizens to trade in listed stocks or debentures in electronic form rather than paper, as required for investors by the Securities Exchange Board of India (SEBI). In a demat account, shares and securities are held electronically instead of the investor taking physical possession of certificates. A demat account is opened by the investor while registering with an investment broker (or sub-broker). The demat account number is quoted for all transactions to enable electronic settlements of trades to take place. India adopted the Demat System for electronic bookkeeping, wherein shares and securities are represented and maintained electronically, thus eliminating the troubles associated with paper shares. After the introduction of the depository system by the Depository Act of 1996, the process for sales, purchases and transfers of shares became significantly easier and most of the risks associated with paper certificates were mitigated.
Benefit of Demat:
The various benefits of demat are enumerated as follows: Easy and convenient way to hold securities Immediate transfer of securities No stamp duty on transfer of securities
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Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. are mostly eliminated) Reduced paperwork for transfer of securities Reduced transaction cost No "odd lot" problem: even one share can be sold Change in address recorded with a DP gets registered with all companies in which investor holds securities eliminating the need to correspond with each of them separately. Transmission of securities is done by DP, eliminating the need for notifying companies. Automatic credit into demat account for shares arising out of bonus/split, consolidation/merger, etc. A single demat account can hold investments in both equity and debt instruments. Traders can work from anywhere (e.g. even from home). There is no risk due to loss on account of fire, theft or mutilation. There is no chance of bad delivery at the time of selling shares as there is no signature mismatch. Transaction costs are usually lower than that in the physical segment. The bonus /rights shares allotted to the investor will be immediately credited into his account. Share transactions like sale or purchase and transfer/transmission etc. can be effected in a much simpler and faster way.
Benefit to the company:

The depository system helps in reducing the cost of new issues due to lower printing and distribution costs. It increases the efficiency of the registrars and transfer agents and the secretarial department of a company. It provides better facilities for communication and timely service to shareholders and investors.
Benefit to the investor:

The depository system reduces risks involved in holding physical certificates, e.g., loss, theft, mutilation, forgery, etc. It ensures transfer settlements and reduces delay in registration of shares. It ensures faster communication to investors. It helps avoid bad delivery problems due to signature differences, etc. It ensures faster payment on sale of shares. No stamp duty is paid on transfer of shares. It provides more acceptability and liquidity of securities.
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Securities Exchange Board of India (SEBI) has laid down certain rules and regulations for getting registered as a depository participant. With the recommendation of the Depository and SEBI's own independent evaluation a DP will be registered under SEBI. The investors account will be credited / debited by the DP only on the basis of valid instruction from the client. The system driven mandatory reconciliation is done between the DP and NSDL. Periodic inspections of both DP and R&T agent are conducted by NSDL The data interchange between NSDL and its business partners is protected by standard protection measures such as encryption. No direct communication links exist between two business partners and all communications are routed through NSDL. A statement of account is received periodically by the investors. NSDL sends statement of account to a random sample of investors a s a counter check. The investor has the right to approach NSDL if the grievances of the investors are not resolved by the concerned DP.
Benefits to brokers:
It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of trading. It eliminates chances of forgery or bad delivery. It increases overall trading and profitability. It increases confidence in their investors.
Demat conversion:
Converting physical records of investments into electronic records is called "dematerialising" of securities. In order to dematerialise physical securities, investors must fill in a Demat Request Form (DRF), which is available with the DP and submit the same along with physical certificates. Every security has an ISIN (International Securities Identification Number). A separate DRF must be filled for each ISIN. The complete process of dematerialisation is outlined below:

The investor surrenders the certificates for dematerialisation to the DP. DP intimates the Depository of the request through the system. DP submits the certificates to the registrar of the issuer company. Registrar confirms the dematerialisation request from Depository.
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After dematerialising the certificates, the registrar updates accounts and informs depository of the completion of dematerialisation. The depository updates its accounts and informs the DP. DP updates the demat account of the investor.
Demat options:
There are many hundreds of Depository Participants (DPs) offering the Demat account facility in India as of September 2011. A comparison of the fees charged by different DPs is detailed below. There are a few distinct advantages of having a bank as a DP. Having a Demat account with a bank DP, usually provides quick processing, accessibility, convenience, and online transaction capability to the investor. Generally, banks credit the Demat account with shares in case of purchase, or credit a savings account with the proceeds of a sale, on the third day. Banks are also advantageous because of the number of branches they have. Some banks give the option of opening a demat account in any branch, while others restrict themselves to a select set of branches. Some private banks also provide online access to the demat account. Hence, the investors can conveniently check online details of their holdings, transactions and status of requests through their bank's net-banking facility. A broker who acts as a DP may not be able to provide these services.
Opening A Demat Account:
First, an investor has to approach a DP and fill up an account opening form. The account opening form must be supported by copies of any one of the approved documents to serve as proof of identity (POI) and proof of address (POA) as specified by SEBI. An investor must have his/her PAN card in original at the time of opening of the account (mandate effective from April 1, 2006). All applicants should carry original documents for verification by an authorized official of the depository participant, under his signature. Further, the investor has to sign an agreement with the DP in a depository prescribed standard format, which details rights and duties of investor and DP. DP should provide the investor with a copy of the agreement and schedule of charges for their future reference. The DP will open the account in the system and give an account number, which is also called BOID (Beneficiary Owner Identification number). The DP may revise the charges by giving 30 days notice in advance. SEBI has rationalised the cost structure for
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dematerialisation by removing account-opening charges, transaction charges for credit of securities, and custody charges vide circular dated January 28, 2005. Further, SEBI has vide circular dated November 9, 2005 advised that with effect from January 9, 2006, no charges shall be levied by a depository on DP and consequently, by a DP on a Beneficiary Owner (BO) when a BO transfers all the securities lying in his account to another branch of the same DP or to another DP of the same depository or another depository, provided the BO Account(s) at transferee DP and at transferor DP are one and the same, i.e. identical in all respects.[1] In case the BO Account at transferor DP is a joint account, the BO Account at transferee DP should also be a joint account in the same sequence of ownership.
Security recommendations:
A Depository Instruction Slip (DIS) is almost like a cheque book, so it can be misused if issued blank. Hence, an investor should exercise sufficient caution while issuing a DIS slip. For example: an investor should deposit only a completely filled-in slip to the broker. Unfilled rows should be cancelled out so that they cannot be tampered with.
Procedure for converting the physical shares into electronic form:

To convert the shares into electronic form the investor should open an account with any of the depository participants. For opening an account the investor has to fill up the account opening form. An account number (client ID) will be allotted after signing the agreement which defines the rights and duties of the DP and the investor wishing to open the account. The client ID along with the DP ID gives a unique identification in the depository system. Any number of depository accounts can be opened. After opening an account with the DP the investor should surrender the physical certificates held in his name to a depository participant. These certificates will be sent to the respective companies where they will be cancelled after dematerialization and will credit the investors account with the DP. The securities on dematerialisation will appear as balances in the depository account. These balances can be transferred like the shares held in physical form. Dematerialised shares are in the fungible form and do not have any distinctive or certificate numbers .The securities in the demat can again be converted into physical form which is called as re-materialisation.
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Various Fees involved:

There are four major charges usually levied on a demat account: account opening fee, annual maintenance fee, custodian fee and transaction fee. Charges for all fees vary from DP to DP.
1. Account-opening fee:
Depending on the DP, there may or may not be an opening account fee. Private Banks, such as HDFC Bank and AXIS Bank, do not have one. However, players such as ICICI Bank, Globe Capital, Karvy Consultants, Bajaj Capital Limited and State Bank of India do impose an opening fee. Most players levy this when re-opening a demat account. However, the Stock Holding Corporation offers a lifetime account opening fee, which allows the investor to hold on to his/her demat account for a long period. The fee is also refundable.
2. Annual maintenance fee:

This is also known as folio maintenance charges, and is generally levied in advance.
3. Custodian fee:
This fee is charged yearly and depends on the number of securities (i.e. ISINs) held in the account. It generally ranges between Rs 0.5 to Rs 1 per ISIN per month. DPs will not charge a custody fee for an ISIN on which the companies have paid one-time custody charges to the depository.
4. Transaction fee:
The transaction fee is charged for crediting/debiting securities to and from the account on a monthly basis. While some DPs, such as SBI, charge a flat fee per transaction, HDFC Bank and ICICI Bank peg the fee to the transaction value, which is subject to a minimum amount. The fee also differs based on the kind of transaction (buying or selling). Some DPs charge only for debiting the securities, while others charge for both. Some DPs also charge the investor even if the instruction to buy/sell fails or is rejected.
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In addition to the other fees, the DP also charges a fee for converting the shares from the physical to the electronic form or vice-versa. This fee varies for both demat (physical-to-electronic) and remat (electronic-to-physical) requests. For demat transactions, some DPs charge a flat fee per request in addition to the variable fee per certificate, while others charge only the variable fee. Some of the additional features (usually offered by banks) are as follows. Some DPs offer a frequent-trader account, where they charge frequent traders at lower rates than the standard charges. Demat account holders are generally required to pay the DP an advance fee for each account that will be adjusted against the various service charges. The account holder needs to raise the balance when it falls below a certain amount prescribed by the DP. However, if the holders also hold a savings account with the DP, they can provide a debit authorisation to the DP for paying this charge. Finally, once choosing a DP, it would be prudent to keep all accounts with that DP, so that tracking of capital gains liability is easier. This is because when calculating capital gains tax, the period of holding will be determined by the DP, and different DPs follow different methods. For instance, ICICI Bank uses the first in first out (FIFO) method to compute the period of holding. The proof of the cost of acquisition will be the contract note. The computation of capital gains is done account-wise.
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Chapter VI- Data Presentation & financial Analysis
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Introduction: This chapter is dedicated to the analysis of the price variations in the commodities with reference to Bullion and Industrial metals. In addition to that it also gives brief details about the bullion commodities and the industrial metals that are traded in the Indian Commodity Market.
Bullion Commodities:
Precious metals in bulk form are known as bullion and are traded on commodity markets. Bullion metals may be cast into ingots or minted into coins. The defining attribute of bullion is that it is valued by its mass and purity rather than by a face value as money. People from every stature of Indian society invest in bullion. They prefer this over property as in times of a crisis it is not all that simple to convert property to liquid cash, but the bullion can be sold within a couple of hours, and the recipient would be cash-rich, almost instantly. There are various factors that contribute to the variability of bullion rates, amongst them the prime being the stock equilibrium, implying the amount that is stocked up & the flow equilibrium, which means the amount that, is flowing in the economy, or the volume of bullion India is ranked as the largest bullion consumer in the world. It records an approximate annual demand of 800 tons. The following are some of the major bullion exchanges in the India: Multi Commodity Exchange of India Limited, Mumbai. National Commodity & Derivatives Exchange Limited, Mumbai. Contact India Commodities (P) Limited, New Delhi. MMTC Limited, New Delhi.
1. Gold Bullion :
Gold is regarded as one of the essentials that measure ones wealth, in India. In fact, one may not be cash-rich, but in some form or the other gold is stacked somewhere. Through centuries owning gold has been a matter of pride and enhancing ones self respect. Till date in the rural regions of India, ones wealth is measured in terms of the gold and jewels one has been able to invest in. This tradition carries
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forth today in the form of bullion trading. Below is the table and a graph showing the price variation during the past five years.
Year 2007 2008 2009 2010 2011
Price 833.75 880.25 1087.5 1405.5 1531
Table showing the price change in the Indian Gold Commodity Market
Gold rates
1800 1600 1400 1200 1000 800 600 400 200 0 2006 2007 2008 2009 2010 2011 Price
Chart showing the change in the Gold rates
The given data in the graph gives a clear picture about the changes in the price of Gold in India during the past five years. There is a constant rise in the price level, having a change of about 697.25 USD during the period from 2007 to 2011. When the economy does poorly and the value of the dollar diminishes, the price of gold will begin to rise. This has happened throughout history and the same
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holds true now. This is why many people are now choosing to invest in gold. While it might seem as though they are betting against economic recovery, gold is the one way that they know to protect their wealth so that they will be able to provide for their families.
2. Silver Bullion:
In Ancient Egypt and Medieval Europe, it was often more valuable than gold. This metal is also produced during the electrolytic refining of copper. Commercial grade fine silver is at least 99.9% pure silver and purities greater than 99.999% are available. Mexico is the world's largest silver producer. According to the Secretary of Economics of Mexico, it produced 80,120,000 troy ounces (2492 metric tons) in 2000, about 15% of the annual production of the world. World Silver Coins have been a favourite of our silver investors and collectors since the first days they were minted. Shop here for silver bullion coins including our last 2011 dated American Eagle Silver Dollars, 2011 Silver Canadian Maple Leaf, 2011 Austrian Philharmonic Silver Coins, and 2011 China Panda Silver Coins. The financial analysis of the rates of silver of the five years is seen below.
Year 2007 2008 2009 2010 2011
Price 14.76 10.79 16.99 30.63 28.18
Table showing the price change in the Indian Silver Commodity Market
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Silver rates
35 30 25 20 15 10 5 0 2006 2007 2008 2009 2010 2011 Price
Chart showing the change in the Silver rates.
The chart states that there had been a decrease in the rates of silver for the period from 2007-08 and a sudden increase in 2009-10. Due to the higher demand for platinum, gold and other metals, there is a fall in the rates of silver. Thus we can see a huge fluctuation in the rates of silver and the biggest reason was caused by the COMEX. The exchange market changed its rules on Margins for buying silver on the futures market by changing the Margin requirements from $11,745 to $21,600 per futures trade.
3. Palladium :
Palladium is a rare and lustrous silvery-white metal that was discovered in 1803 by William Hyde Wollaston, who named it palladium after the asteroid Pallas. Palladium itself has been used as a precious metal in jewellery since 1939, as an alternative to platinum or white gold. Palladium is used as an investment. Palladium has touched a nine-year high on the back of soaring commodity prices and brisk car sales across the world. Indian car companies like Maruti, Hyundai, General Motors and Toyota say they have decided to absorb the price increase for now. The commodity, used mostly to make jewellery and pollution-control devices for cars along with platinum, is up 49% this year, outperforming the three other major precious metals. According to analyst,
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platinum will average $1636 a troy ounce this year and $1800/oz next year, and Palladium will average $480/oz and $525/oz.
Year 2007 2008 2009 2010 2011
Price 364 183 393 797 630
Table showing the price change in the Indian Palladium Commodity Market
Palladium rates
900 800 700 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 2011 Price
Chart showing the change in the Palladium rates.
Palladium is a rare and lustrous silvery-white metal that was discovered in 1803. It is also used as an investment. The above graph gives detail information that the price of palladium has undergone through a constant fluctuation during the past five years. The rates of palladium had a huge leap in 2008-2011 with a sudden fall from 2011 onwards.
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4. Platinum :
Over 20% of all consumer goods either contain platinum or are produced using platinum. As a consequence, the continued expansion of advanced and developing economies has caused demand for the metal to grow at a faster pace than it is being mined. Of the total global production of 6.7 million ounces, South Africa produced 5.29-million ounces, Russia 8.80-lakh ounces and North America 3.45-lakh ounces. Transvaal in South Africa, Urals in Russia and Columbia in US are the major platinum producing States. There is an increasing demand for Platinum jewellery. Platinum is a widely-used although extremely rare metal, critically important to the auto industry, the jewellery trade, and the chemical, electrical and glass manufacturing industries.
Year 2007 2008 2009 2010 2011
Price 1530 898 1461 1755 1354
Table showing the price change in the Indian Platinum Commodity Market
Platinum rates
2000 1800 1600 1400 1200 1000 800 600 400 200 0 2006
Price
2007
2008
2009
2010
2011
Chart showing the change in the Platinum rates.

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By referring the above graph and table relating to the price change of Platinum in we can analyse the fluctuation occurred India during the past five years i.e. from 2007-2011. There was a fall in the price during 2007-08 and a rise in200910. But during the period of 2011 the prices fell and it has a very simple and plain reason i.e. when the rest of the commodities move up, platinum will follow, just like when the commodities went down, platinum followed and platinum supply is very limited, platinum prices are more volatile than the other industrial metals.
Industrial metals
Industrial metals include commodities that are used in a wide variety of applications, including numerous constructions and manufacturing businesses. This category of commodity includes dozens of individual natural resources, with the most commonly-used including Aluminium, Copper, Lead, Nickel, Steel, Tin, and Zinc. Because metals are used in home construction and various manufacturing applications, these commodities tend to exhibit a strong correlation to global equity markets; when demand for raw materials climbs, the pulse of the global economy quickens. In addition, increases in metal prices often trickle down through the products in which they are used, making this asset class a potentially effective tool for combating inflation.
1. Aluminium :
Aluminium is one of the most abundant metals on earth and the third most widespread element after oxygen and silicon. Aluminium is generally prized for its low density and its remarkably ability to withstand corrosion, making it a popular choice for a variety of uses. Currently, aluminium finds its way into a wide range of uses stretching from foil and cans to cars and aircraft, suggesting that the product has a wide variety of industrial uses.
In the world, presently India is the estimated to be the fifth largest producer of aluminium. According to experts the country produces approximately 3037 Million tons of this metal. It is stated that in spite of the current rate of consumption, the country has enough reserves of aluminium to last over 350 years.
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The country annually exports an average of 82,000 tons, whereas the domestic consumption barely crosses about 6.18 Lakh tons, presently. Primary producers of aluminium in India are hit by increasing operating costs which affects their margins. The graph show the price variation occurred in the past 30 days i.e. from 16 of December to 13th of January.
th
2. Copper:
Copper has been known to mankind for thousands of years and has been an important metal in human development since it has similar properties as some, more expensive, metals. Copper is similar to silver and gold in many ways as the red metal is very ductile, malleable and it can very easily conducted heat and electricity. India is not a major producer of copper ore but it produces the refined form of copper. It contributes to about 3.5 to 4% of the worlds total production of copper that sums up to a figure of 6 lakh tons. India is indulged in importing copper ores from the ore exporting countries of the world and extract copper out of them as there is a shortage of copper mines in the country. The production of copper in India is
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dependent on these imports only. Three companies in India largely handle production of copper from its ore. They are

Birla copper Sterlite Industries Hindustan Copper ltd
Among these three countries, Hindustan Copper ltd forms part of the Indian public sector and the other two belongs to the private sector. However, small quantities of copper that is produced in India are extracted from the copper mines situated at Khetri and Malanjkhand areas of the country. Below is the graph showing the price variation of the copper from for five years i.e. from 2006 to 2011.
Copper Price Chart 2006-11
3. Lead :
Lead is extremely resistant to corrosion, a physical property that makes the metal ideal for handling corrosive liquids and multiple applications in construction. In addition to its uses in roof shingles and other aspects of construction (such as lead pipes), lead is used in batteries, ammunition, and weights. Because of its high density and atomic number lead can also be an effective shield against
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radiation, which accounts for its use in medical vests. Investors seeking greater exposure to lead have limited options. Investors can obtain exposure by buying futures contracts on the LME and while physical exposure is theoretically possible, the low value/density ratio of lead makes it impractical. Lead production in India is estimated to be around 82,000 ton, mostly from secondary sources. Lack of any major lead ore deposit is the main constraint for enhancing domestic lead production. Indias lead production rate is not stagnant as it keeps change year by year. India's production is highly effected by zinc because domestically lead mining is done as co-product of zinc and if any case the zinc supply is increased or decreased then it will same reflect to lead.
Lead Price Chart 2006-11
4. Nickel:
Nickel has a number of industrial uses across a wide range of sectors. Two of its most popular uses are in nickel steels which account for 60% of the metal's use and nickel-copper alloys which account for another 14%. Nickel is generally prized for its anti-corrosive properties which makes a great compliment in steel production as well as in currencies. In fact, many are likely most familiar with the metal thanks to its use in U.S. coinage system and the five cent piece, the nickel. Although the coin is just 25% nickel today it is still one of the biggest uses of the popular industrial metal.
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A rising demand and no production make the country a total importer of nickel. India imports around 30,000 MT of Nickel annually. India's heavy investments in construction of high-rise buildings, heavy machineries and bridges are boosting demand for stainless steel thus Nickel.
Nickel Price Chart 2006-11
5. Sponge Iron :
Sponge iron is used to make steel by all Indian steel producers and is a substitute for steel melting scrap. Healthy demand growth in steel sector is also pushing sponge iron demand. During 2010-11, provisional data from Joint Plant Committee (JPC) indicates that overall capacity utilization for production of crude steel in India stood at 89%. Steel is a deregulated sector. As such decision to increase/moderate capacity utilization is taken by the steel producers based on prevailing market conditions of demand and supply, both domestic and international. The prices of sponge iron rose by nearly 20 per cent in the past month in line with similar rises in the prices of other steel making raw material, including iron ore
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and scrap. On Friday, sponge iron prices in Raipur, Chhattisgarh, Indias largest producing hub, is quoted at Rs 21,000 a tonne, from Rs 16,500 a tonne about a month earlier. The commodity slipped marginally from its peak at Rs 22,000 a tonne yesterday. Producers and traders attribute this price rise to an all-round appreciation in finished steel products and raw materials. The graph shows the price variation of the sponge iron of a day. i.e. of December 23 2011.
rd
Chart of Sponge Iron as on December 23rd.
6. Steel :
The Indian governments National Steel Policy targets an average 7 percent growth in steel output, which would take the countrys production capacity to more than 100 million tons by 2020.India produces approximately 36 Million tons of steel, annually, placing the nation as the eighth largest steel producer in the world. This exceeds the domestic consumption that is estimated to be 30 million tons, per year. This has made India a net exporter of the metal. The Indian government plans to invest over $350 billion in steel industries related to infrastructure and construction. The Indian government estimates that steel production would grow at a CAGR of 16 per cent to touch 124.06 MT by 2011-12. India's steel production capacity is estimated to be 200 MT by 2020.
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Although investors cannot achieve physical exposure to the product, they can buy futures contracts of a wide variety of steel types. Additionally, there are a number of companies that either process or make steel or mine for the product's key ingredient iron ore. Due to this, there are multiple steel ETFs and individual stocks that can allow investors to achieve exposure to the metal.
Steel Price Chart 2006-11
7. Tin :
Tin has a number of industrial uses across a number of sectors. Close to half the tin produced is used in soldering a process that joins two metallic surfaces together. Other popular uses of the metal are in tinplates, chemicals, and brass/bronze. Investing in tin has appeal thanks to its widespread use in industrial applications and its ability to serve as a hedge against the U.S. dollar and inflationary pressures in certain environments. India produces approximately 10 tons of tin, per year. This is a very small amount, considering that it requires a minimum of 4000 tons of tin and its alloys, which it imports. Tin exports from Indonesia fell by a massive 75% Year-on Year in November mainly due to a self-imposed ban by the tin smelters. Exports fell from 8968 tonnes in November 2010 to 2202 tonne in November 2011
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Today, tin is heavily mined in Southeast Asia, China, and South America, although countries such as Russia and Australia also have large deposits as well. The demand for the tin has a constant rise which can be estimated by the graph.
Tin Price Chart 2006-11
8. Zinc :
Zinc, also known as spelter, is a metallic element which is used all across modern communities. The metal is typically found with other base metals, like copper, and is also a large component in the Earths crust. India accounts for around 4% of global Zinc production, Hindustan Zinc Ltd. Being the largest producer. India is one of the fastest growing regions of zinc consumption in the world. Indian zinc demand is likely to grow 12-15 percent per annum compared with the global average of 5 percent. Growth in steel sector is the main factor behind the rise in domestic consumption as 70 percent of Indias zinc use is accounted by steel galvanizing. India hopes to become self reliant in zinc production by end of 2010. Industry estimates place that Indias annual production has to touch 14 tons per year by 2020 if it has to sustain 10 percent growth till 2010 and at 7 percent rate thereafter. Asia and especially India have seen a marked pickup in demand and with India increasing its infrastructure building. The supply of zinc comes from various countries across the world. China leads the way, followed by Australia, Peru, United States, and Canada. The mineral is
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produced in a healthy mix of both emerging markets, as well as developed nations with more dependable government structures, meaning that this metal will not fluctuate quite as much as others who sometimes depend entirely on emerging markets for their supplies. Also, due to the fact that this metal is so widespread, its price will not see the dramatic shifts that other, less plentiful commodities may see. As mentioned above, a majority of the extracted zinc has remained in use, making this metal a more stable investment
Zinc Price Chart 2006-11
Causes for Commodity Prices to Go Up & Down:

The simplest explanation for why the price for anything goes up or down is Supply and Demand. If we go to an auction we can see supply and demand at work at its most pure level. If more than one person desires to own the item being auctioned, you have more demand than supply: 2 bidders and 1 item. The price goes up. If you have only one bidder for an item, that person can usually name their price, assuming the seller is willing to sell at the named price. If you have no interested bidders, the auctioneer will immediately start lowering the opening bid in hopes of finding some lower price that will interest someone to buy.
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There are several things that affect the price of bullion. In our global economy, these things play out all across the planet every day. Below are some of the main reasons for the fluctuations in the bullion market. 1. Developing nations are currently increasing their demand for metals for two reasons: jewellery and industry. In places like India and China, we are seeing very fast increases in economic growth. As more people around the planet see their incomes increase, the demand for goods containing precious metals increases.
2. Economic uncertainty also creates increased demand for precious metals. The idea here is named by economists the flight to safety. The idea is that, when it comes to having money, people tend to trust their savings to things that have intrinsic value and abandon savings in things like stocks and bonds. Sometimes it as simple as taking your money out of the bank and putting it in your mattress. Some people fear that the bank will collapse and take their money with. Metals have always been a favourite place to invest in uncertain economic times. Metals have a large demand, they are easy to store, and they have lots of value per pound of metal.
3. Supply and Demand Precious metals are traded in financial markets all over the world. They include gold, silver, platinum and palladium. Gold is by far the most commonly traded precious metal followed by silver and platinum. Palladium is not traded as much as the other three. Precious metal prices fluctuate daily. The primary reason precious metals gain or lose value is supply and demand. If more people want to buy precious metals on the world financial markets, then prices rise. If fewer people want to buy precious metals prices fall.
4. Precious Metal Supply-There are many industrial and high-tech uses for precious metals. They are used in manufacturing and electronic components. Precious metals are also used to make coins, jewellery and other luxury items. When there is an increase in the use of precious metals for these purposes, the supply drys up. The rise of the middle class in China and India is increasing the production of jewellery made with precious metals. That is putting a strain on supply. Declining production in mines that produce precious metals also reduces supply. When precious metal supply declines, prices rise.
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5. Precious Metal Demand-Precious metals are often seen as a safe haven for investment money during difficult economic times. Therefore, when the economy is struggling, precious metal prices rise. Factors that can make this happen include concerns about currency values, political instability, interest rate fluctuation and oil prices. There are consistent price spikes in precious metals whenever there is bad news in one of these areas. Consistently bad economic news drives long-term precious metal price gains. Prosperity and good economic news cause precious metal values to fall.
6. Investor Influence on Precious Metal Values-Fluctuations in precious metal values are often tempered by investor behaviour. When precious metal prices rise, holders of precious metals often sell to cash in on profits. This causes prices to fall as more precious metals are released into the market. The reverse happens when precious metal prices are low. Investors hoping to take advantage of low prices buy up precious metals forcing values up. Emotion also plays a large roll in investor activity. A frenzy of buying or selling can force prices far beyond what is reasonable for the existing supply and demand. This has been seen many times in history. The emotional buying and selling of precious metals usually lasts a very short time. Market forces quickly take over returning prices to more justifiable levels.
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Chapter VII- Findings & Suggestions
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Findings:
In the Study of the Indian Commodity Market, I found very interesting facts about the origination and the whole commodity market. 1. MCX is India's No. 1 commodity exchange with 83% market share and now
reaches out to about 800 cities and towns in India with the help of about 126,000 trading terminals. MCX COMDEX is India's first and only composite commodity futures price index.
2. Worldwide, there are 48 major commodity exchanges that trade over 96 commodities, ranging from wheat and cotton to silver and oil. Most trading is done in futures contracts, that is, agreements to deliver goods at a set time in the future for a price established at the time of the agreement.
3. The Chicago Board of Trade is the largest futures and options exchange in the United States, the largest in the world is Eurex, an electronic European exchange.
4. Commodity trading is different from trading stocks as to the fact that while stocks are based on the future expectations of the buyer, commodity futures have an underlying instrument. Commodities prices tend to increase with inflation. Stocks and bonds on the other hand, tend to perform better when the rate of inflation is stable or slowing.
5. The first ever National Multi Commodity Exchange of the country has been launched in Ahmedabad in November, 2002.
6. Commodity derivatives markets are extremely transparent in the sense that the manipulation of prices of a commodity is extremely difficult due to globalization of economies, thereby providing for prices benchmarked across different countries and continents. For example, gold, silver, crude oil, etc. are
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international commodities, whose prices in India are indicative of the global situation.
7. Buyers and sellers can avail of the bank finances for trading in commodities. Nationalized banks and private sector banks have come forward to offer credit facilities for commodity trading.
8. Historically, dating from ancient Sumerian use of sheep or goats, other peoples using pigs, rare seashells, or other items as commodity money, people have sought ways to standardize and trade contracts in the delivery of such items, to render trade itself more smooth and predictable.
9. The players in the futures market are hedgers and speculators. A hedger tries to minimize risk by buying or selling now in an effort to avoid rising or declining prices. Conversely, the speculator will try to profit from the risks by buying or selling now in anticipation of rising or declining prices.
10. National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally managed online multi commodity exchange promoted by ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange of India Limited (NSE).
11. As Commodity Trading is done online due to the dematerialization, there are many women traders in commodity market who sit at home and get into the commodity business.
12. Commodity market regulator of India, FMC (Forward Markets Commission), expects the turnover in 23 commodity exchanges to grow 25% to reach Rs.150 lakh crore in the current fiscal(2011), attributed to the recovery that is underway in global economy.
13. The commodity market in India clocks a daily average turnover of Rs 12,00015,000 crore (Rs 120-150 billion). The accumulative commodities derivatives
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trade value is estimated to have reached the equivalent of 66 per cent of the gross domestic product and the future will only see the percentage rising, says ICICI direct.com vice-president Kedar Deshpande.
14. The Forward Markets Commission is the regulatory body for the commodity market in India. It is the equivalent of the Securities and Exchange Board of India (SEBI), which protects the interests of investors in securities
Suggestions:
When it comes to Trading in Commodity Market, the first thing which comes to mind is who should invest or who can invest. The answer is a very simple one. Any investor who wants to take advantage of price movements and wishes to diversify his portfolio can invest in commodities. However, retail and small investors should be careful while investing in commodities as the swings are volatile and lack of knowledge may result in loss of wealth. Investors must understand the demand cycles that commodity go through and should have a view on what factors may affect this. Ideally, you should invest in select commodities that you can analyse rather than speculate across products you have no idea about. Investing in commodities should be undertaken as a kicker in your portfolio and not as the first destination for your money.
Suggestion To The Investor:

The best way to trade commodity stock is to follow the 3 important steps. Find a good Financial Website Understand the Yield Curve and Currencies Choose the Commodities and understand the Fundamentals.
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Suggestion To The Upcoming Traded:

The Trader has to be very careful when he starts up with the commodity trading. The precautions he must take are as follows. Decide what kind of trading you want to start your career with and stay realistic. Develop a contact list for potential employers. Expand your contact list by asking any friends or relatives who work with commodities, hedging, futures trading or investments if they know any people or companies you could approach. Study and prepare yourself to be competitive in the field. Training new traders takes time and money, so get familiar with the language and the concepts ahead of time Interview with prospective employers. Trading, by its nature, involves a lot of dealing with other people.
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Commodity trading provides an ideal asset allocation, also helps you

hedge against inflation and buy a piece of global demand growth. Commodities allow a portfolio to improve overall return at the same level of risk. Commodities also move up when stocks go down. Commodity prices rise during times of crisis such as wars and stock market crashes. The basic difference between the commodity exchange and stock exchange is that in a commodity exchange, actual physical products that are nonfinancial in nature are traded. These include agricultural products such as wheat, castor, groundnut or sesame and industrial products such as aluminium, zinc, nickel and also precious metals like gold and silver. Any investor who wants to take advantage of price movements and wishes to diversify his portfolio can invest in commodities. However, retail and small investors should be careful while investing in commodities as the swings are volatile and lack of knowledge may result in loss of wealth. Investors must understand the demand cycle that commodities go through and should have a view on what factors may affect this. Ideally, you should invest in select commodities that you can analyse rather than speculate across products you have no idea about. Investing in commodities should be undertaken as a kicker in your portfolio and not as the first destination for your money.
********
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Bibliography
Annual Report of Indian Commodities 2010-11 Websites : commodityonline.com rediff.com Indian Agro Industry-Agricultural Commodities traded in India. Kitco.com- Live market quotes (price charts). CRN India- mailto:http://www.crnindia.com/commodity/index.html. Times Of India- Indian Business Monex Precious Metals
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A Study On Indian Commodities Market

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A Study On Indian Commodities Market

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CONTENTS

Commodity Exchange. 1. Meaning 2. List of Commodities exchange 18 19-23

Indian Commodity Market

34-35 36-38 39-40 41-43 44-48 49 50-51

Data Presentation & Financial Analysis Findings & Suggestions

Indian Commodity Market

Chapter I-Research Design

Indian Commodity Market

2. Objectives of the Study:

1. To study about the Origin & Registration in the commodity market.

2. To know the Various Commodity Exchanges in India.

3. To know about the commodities traded in Indian commodity market.

4. To know about the trading procedure and Dematerialization.

4. Research Methodology: 1. Primary Method

Indian Commodity Market

gives a detailed information about the

market and the registration process.

Gives a picture about the various commodity exchanges

Chapter-VII It is entitled by the major findings and Suggestions.

Indian Commodity Market

Chapter II- Introduction To Commodities

Indian Commodity Market

1. History & Early Life:

Indian Commodity Market

2. Relevance and Potential of Commodity Markets in India:

Indian Commodity Market

3. Registration in Commodity Market:

Exchange-Traded Funds and Exchange-Traded Notes:

Indian Commodity Market

4. Rituals of the Investor

Indian Commodity Market

Chapter III- Commodity Exchange In India

Indian Commodity Market

1. Meaning & Various Exchanges in India

Indian Commodity Market

Indian Commodity Market

2. The Various Commodities Exchanges:

a. National Commodity and Derivatives Exchange (NCDEX)

Indian Commodity Market

b. Multi Commodity Exchange (MCX):

c. National Multi Commodity Exchange of India (NMCE)

d. National Board Of Trade (NBOT):

Indian Commodity Market

e. Ace Derivatives & Commodity Exchange (ACE)

Indian Commodity Market

Chapter IV- The Various Commodities Traded In India

Indian Commodity Market

Indian Commodity Market

Indian Commodity Market

Indian Commodity Market

Indian Commodity Market

Indian Commodity Market

Areca Nut Cashew Kernel Rubber Coffee

Indian Commodity Market

types of the Chana pulses: Desi Chana & Kabuli Chana.

Indian Commodity Market

Indian Commodity Market

Indian Commodity Market

Indian Commodity Market

Indian Commodity Market

Indian Commodity Market

7. Bullion (Precious Metals):

Indian Commodity Market