December 29th, 2017 → 1:50 pm @ WinTrader
The Multi Commodity Exchange of India Limited (MCX) is the India’s first listed exchange. MCX started its operation in November 2003. MCX offering more than 55 commodities is the largest commodity exchange in India. From September 28, 2015 onwards is being operated under the regulatory framework of Securities and Exchange Board of India (SEBI). The MCX is an India-based holding exchange which offers trading in various segments such as bullion, ferrous and nonferrous metals, energy and agricultural commodities . This India-based company facilitates commodity derivatives transactions including its clearing and settlement operations. MCXAgri, MCXEnergy and MCXMetal are other commodity indices built-up by the Company. In India’s commodity market MCX is the most efficient and cost-effective platform and is the world’s largest exchange in Silver, Second largest in Gold, Copper and Natural Gas and the third largest in Crude Oil. The total trade value at the end of the year 2015-2016 was INR 555164431.86 Crore. MCX is India’s leading commodity derivatives exchange with its presence in more than 1200 cities and towns across India as on 30 September, 2017. MCX is also an ISO certified company. Owing to the global economic changes India Commodity market has undergone lots of changes and put forward many opportunities in the process.
MCX ferrous and nonferrous metals and energy commodities price changes always depends on the corresponding international prices, conversion of USD to INR, and demand/supply. Now let us check how these type of factors affect MCX trading.
When the US dollar being strengthened or weakened commodity price would rise or fall respectively. This type of USD to INR conversion rate will create sudden price fluctuations in the market. And in sometimes the international commodity price would have rises and in Indian market commodity price would have drop and vice versa. Also there may be some volatile movement in the price without any such dramatic change in their international counterpart. In order to conclude whether to buy or sell it is always better to know the international prices and USD to INR rate conversion.
Factors which affect commodity market
• Unlike equity market, commodity market would have less influenced by domestic events. Which have a very small role to play in commodity market. Commodity markets are largely influenced by Data releases from US, European countries, China (Major metal consumer/producers), and Chiele.
• Indian market varies in accordance with international market such as NYMEX and LME.
• Demand and Supply is also affect Indian commodity market. More demand leads to more price rise. Some events like labor strikes at important strikes, environmental issues, Geopolitical situations etc will change Demand supply ratio. You can analyze the inventory data that released by London metal exchange in daily and weekly basis.
• Jobless Data releases from Unites States are a major factor that affects base metals and dollar. It affect badly if the unemployment is higher.
• GDP rate of a country is also affect commodity market. Good GDP from US and other European countries leads to more rise in base metals.
• When Crude oil inventories release on Wednesday it will instantaneously affect crude oil price. Likewise, Natural Gas inventories release on Thursday will also make instant effect on Natural Gas prices.
Connection between Global market and Indian commodity market
Currency volatility
The energy commodities like, crude oil, gold, copper, silver, zinc etc are actively traded in MCX. These show some strong correlation with the global futures contract. There exists a strong correlation of 98.70 per cent between MCX crude oil futures and Nymex crude oil futures, with it rarely falling below 97 %. The currency volatility, especially USD-INR volatility leads to changes in the correlation. If there is a sharp weakness in the rupee, then it results a higher domestic prices. Similar events occur in 2013, even in the inactive global prices. MCX gold and MCX silver futures also shows a very high correlation values corresponds to their benchmark Comex contracts. There is nearly 70 per cent of correlation between MCX gold futures and Comex gold futures within 100 days.
In the past, for a considerable time period the correlation was around 99 per cent. In recent times it seems to have a lower correlation. This is because of the combined effect of volatility in the rupee and distortion due to the increased import duty of gold and silver. So a better alternative to Indian traders who want better correlation with global contracts are hedge future contracts. Gold hedge and silver hedge futures provided by NCDEX. These are exclusive of customs duty, local sales tax and any other charges. These contracts are not influenced by changes in Indian import duty or other duties.
Market hours
Since Indian commodity markets are active till 11.30 pm at night, thus Indian metals and energy futures have a higher intraday correlation with global futures. In the case of MCX copper futures, it has about 98.20 per cent correlation with LME copper prices. Not only copper but also MCX Zinc, Aluminium, Lead, and Nickel future contracts shows a very strong correlation with corresponding benchmark contracts on the LME.
In fact, agricultural commodities also have a better correlation with international benchmark contracts. Just like metal and energy commodities in MCX but not that much strong.
Deviation in prices
India is an important exporter of soyameal and a big importer of soya oil. Owing to high import duty structure soyabeans in India are not freely traded. Indian soya oil and meal prices are influenced by global changes in these, which in turn influence domestic prices.
Similarly, India is the second largest producer of cotton and also the second largest exporter of cotton. However, International prices also have some impact on domestic agriculture commodities prices.
Rupee volatility, import duty change along with domestic supply and demand all these plays major role in deviation between Indian and overseas price. Thus, Indian cotton demand and supply affects international prices.
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