Sunday, December 27, 2015

Mining in 2016: Six reasons to be cheerful

Mining in 2016: Six reasons to be cheerful
In our look back at 2015 we called it mining's annus horribilis.
In stead of the hoped for rebound in metals and minerals prices, just about everything from copper to crude and coal to diamonds lost more ground. Those that were calling a bottom on the commodities market in 2015 where sorely disappointed and anyone making a bullish casewere shouted down.
Capital Economics, a research firm frequently quoted in these pages, in a new note outlines its outlook for commodities in 2016.
Some metals prices already appear to have found a floor following the announcement of large cutbacks in production and new investment
Julian Jessop, Head of Commodities Research at the London-based firm, with admirable understatement says it has been "a difficult year for those, ourselves included, who have had anything positive to say about commodities."

Nevertheless, Jessop found six key drivers and themes that should help prices to recover over the course of the next year:
  1. China gears up: "The bulk of the slowdown that many still fear lies ahead has, in fact, already happened; we estimate that actual growth was only 4.5% or so this year, and expect economic activity to pick up pace again during 2016."
  2. Dollar damage done: The strengthening greenback "has both lowered the dollar price that (non-US) consumers are able to pay and allowed commodity producers with revenues in dollars and costs in local currencies to maintain supply at a high level," but the "bulk of this move should now be over too".
  3. Inflation returns: "Underlying price pressures are finally starting to pick up – notably in the US – and headline inflation rates should rebound in the coming months as the biggest declines in the cost of oil drop out of the annual comparisons. This, in turn, could revive demand for inflation hedges including commodities, with gold in particular likely to benefit."
  4. More easy money While the Fed will continue to raise rates in 2016, it would be because of a stronger economy and higher inflation, keeping real interest rates low. Europe and Japan will continue or  accelerate its quantitative easing programs while the People's Bank of China also "has plenty of room to ease further, via cuts in interest rates and reserve requirements, without the need to resort to a big fall in the renminbi."
  5. The flipside is that there is plenty of room for money to return to the sector
  6. Supply cuts: On top of better news on the demand side, "a recovery in the prices of many industrial commodities will probably require further evidence that supply is being tamed by the previous sharp falls. Some metals prices already appear to have found a floor following the announcement of large cutbacks in production and new investment."
  7. Investor interest: While investor sentiment towards commodities are still at record lows "the flipside is that there is plenty of room for money to return to the sector. Indeed, commodity prices may look increasingly attractive relative to the high valuations of equities and (especially) bonds. We would not expect investor demand to trigger a rebound in prices on its own. But speculative flows could support any recovery driven by the underlying fundamentals of supply and demand, just as highly negative sentiment has compounded the recent weakness."
Click here for more analysis from Capital Economics on the commodity sector.

These Are The Top 20 Companies By Market Cap Over The Past Decade

There are many observations to be made about the dramatic shifts shown in the chart below which demonstrates the top 20 companies by market cap over the past decade, but what, to us, stands out the most are two things:
  1. after a decade of being either the world's biggest or second largest market capitalized company, Exxon has tumbled to 5th spot, something it did not do even during the peak of the financial crisis; and
  2. after five years of being in the top spot, it is time for someone to finally dethrone the world's most popular smartphone maker.
These Are The Top 20 Companies By Market Cap Over The Past Decade

Sunday, December 13, 2015

Putin Orders Military To "Immediately Destroy" Any Threat To Russian Forces

Russian President Vladimir Putin has ratcheted up the rhetoric in what appears to be one step closer to the potential for direct conflict with The West. While not detailing 'who' he was focued on, amid the obvious Turkey-Russia tensions, Putin told a session of the Defense Ministry's collegium that "I order to act extremely tough. Any targets that threaten Russian forces or our infrastructure on the ground should be immediately destroyed."
During the meeting of the most senior defense officials, ITAR TASS reports that Putin also warned against "those who will again try to organize any provocations against our servicemen."
 "We have already taken additional measures to ensure security of Russian servicemen and air base. It was strengthened by new aviation groups and missile defense systems. Strike aircraft will now carry out operations under cover of fighter jets,"
Putin said that the Russian military have caused a substantial damage to terrorists in Syria, adding that the actions of the Russian Armed Forces are worthy of praise.
"The combined operation of the Aerospace Defence Forces and the Navy, the use of newest high precision weapons systems has caused a serious damage to the terrorist infrastructure, thus qualitatively changing the situation in Syria," the president said.
The president also ordered the defense ministry to coordinate actions in Syria with Israel’s command post and the US-led international coalition.
"It’s important to develop cooperation with all countries really interested in destroying terrorists. I am talking about contacts on ensuring flight safety with the command post of Israel’s air force and forces of the US-led coalition," Putin said.
According to the official, terrorists in Syria pose a direct threat to Russia and Moscow’s actions are carried out to protect the country rather than due to abstract interests.
"Our soldiers in Syria are, first and foremost, defending their country. Our actions there aren’t motivated by some obscure and abstract geopolitical interests or a desire to train our forces and test new weapons – which is of course an important goal as well. Our main objective is to avert a threat to the Russian Federation,"
As we noted previously, The Kremlin looks prepared not only to stay the course, but to ramp up the deployment. Not only is Moscow hitting terrorist targets with cruise missiles from Russia’s Caspian Fleet, but now, Moscow is shooting at ISIS from a submarine in what can only be described as an effort by Putin to use Syria as a testing ground for Russia’s long dormant military juggernaut (after all, you don’t really need to shoot at a group that doesn’t have an air force or a navy from a sub). 
On that note, we present the following update graphic prepared by Louis Martin-V├ęzian of CIGeography as post at The Aviationst. It documents the scope of Russia’s operation in the Mid-East and should give you an idea of just how committed Moscow is to the fight.
Putin Orders Military To "Immediately Destroy" Any Threat To Russian Forces

Wednesday, December 9, 2015

Chinese commodity demand: Crisis. What crisis?

Chinese commodity demand: Crisis. What crisis?
Tuesday was another bleak day on commodity markets.
The price of crude oil ($37.65) and iron ore ($38.80) dropped again and the globe's two most traded raw materials are now at levels prior to the word supercycle even entering the popular lexicon.
Similarly precious metals and industrial continued to drift lower with bellwether copper exchanging hands barely above seven-year lows ($2.04) and coal (thermal $51, coking $72) continuing its inexorably decline.
The world's major mining companies were trading even weaker than their products would suggest with stock valuations reaching decade or more lows.
On Tuesday billions more wiped off the market value of BHP Billiton (–3.7%), Rio Tinto (–8.6%), Vale (–6.3%), Freeport McMoRan (–5%), Glencore (–6.9%) and Anglo-American (–12.7%) in New York.
The fact that the mining and metals are being overwhelmed by negative sentiment and that sector investors are willing to shrug any positive developments were very much on display on Tuesday.
Commodity import volumes will increase further in 2016 due to an expected improvement in economic activity, a further lift from government policy support and an appreciation in the renminbi
Data released by Chinese customs early in the day showed the country's total import bill falling by 8.7% year on year in November. That was better than the 18.8% plunge in October but the weakness in the headline numbers gave bears an excuse to start selling again.

But the US dollar figure masks a significant underlying recovery in demand.
In volume terms, overall imports of commodities accelerated by 17% compared to the same month last year. It was the greatest jump for almost two years.
Chinese iron ore imports surged 22% in November year on year and 8.8% compared to October. Imports for the first eleven months were up just 1.3% compared to 2014, but last year was a record breaking year.
Copper shipments was just as strong with inbound shipments of refined metal rising 9.5% to 460 000 tonnes from a month earlier and racking up double digit gains compared to last year.
While year to date copper imports are down slightly, ore and concentrate imports rocketed  37% to a record 1.44 million tonnes compared to October and for 2015 imports of copper mine output  is growing by double digits.
As this chart from Capital Economics shows crude oil imports are picking up again and even the decline in coal seems to be arrested.
John Kovacs, senior commodities economist at the independent research firm expects that overall commodity import volumes will increase further in 2016 due to an expected improvement in economic activity, a further lift from government policy support and an appreciation in the renminbi."
"This increase in Chinese commodity imports in turn supports our forecasts for a recovery in prices next year," says the research note.

Sunday, November 15, 2015

Rusal: Aluminum sector under significant pressure, global surplus to surge in 2015

Rusal: Aluminum sector under significant pressure, global surplus to surge in 2015
United Co. Rusal, the global aluminum major has reported 26% decline in profits during the third quarter of the year. The company noted that the aluminum sector across the globe is still under significant pressure. Also, weaker demand from emerging markets has dented demand growth prospects during 2015. The capacity additions in the Middle East, India and China have also impacted the sector.
The statement issued by the company stated that its Q3 EBITDA fell sharply from $568 million during the previous quarter to $420 million during third quarter of 2015. Also revenue dropped by 9% to $2.07 billion. The profits fell sharply due to the sharp decline in alloy prices, the company noted.
According to Vladislav Soloviev, CEO of Rusal, the higher-than-expected market surplus has resulted in huge decline in prices and premiums. The prices of aluminum have declined by nearly 19% since the beginning of the year. The global aluminum market faced significant pressure during the quarter gone by, he added.
Rusal has trimmed its global aluminum demand forecast for 2015. The company has lowered the forecast to 5.6% from the earlier predicted 6%. Also, it sees no ending to surplus capacity in market. The surplus forecast for 2015 has been raised to 373,000 metric tons. The company in its September review had hinted at cutting output by 200,000 tons, if the prices fail to recover.
Despite falling domestic prices, the pace of capacity closures remained slow in China. However, the closures are likely to pick up in 2016. The company expects rapid closures during next year as the new five-year development plan unfolds.
RUSAL is a leading, global aluminium producer. The company’s main products are primary aluminium, aluminium alloys, foil and alumina . RUSAL operates in 19 countries on 5 continents.

Monday, November 2, 2015

S&P 500 -The Scariest Chart, "Most Overbought" In 11 Months.

What would Halloween be without a scary chart of The Stock Market That Cannot Die? We know the stock market cannot die because we’re constantly told it’s immortal:
S&P 500 -The Scariest Chart,  "Most Overbought" In 11 Months.
You know the drill: the Federal Reserve will never let the market fall, never, never, never: it will continue to loft higher for all time, in immortal glory.
Like a blood-sucking vampire, the market is parasitically feeding off the real economy. As the host weakens, the parasite increases its control. Now the market is telling the real economy: if I die, you die, too.
The entire Status Quo is now utterly dependent on a rising stock market: not just for the illusion of the wealth effect, but for tax revenues, pension fund stability, and the fantasy that a rising market is a substitute for a healthy economy.
It’s terribly frightening to be in thrall to a parasite that will bleed its host dry to maintain itself. But that’s not the scariest possibility.
The scariest possibility is that the stock market will fall despite all the promises that its advance is immortal.
If this were to happen, all those “safe” index funds would implode along with the broad market.

 "Most Overbought" In 11 Months

S&P 500 -The Scariest Chart,  "Most Overbought" In 11 Months.
The last time S&P 500 rallied at such a pace (from an extreme of oversoldness) and reached such an extreme level of overboughtnessthings went south rather quickly...

Friday, October 30, 2015

Gold price on knife edge after post-Fed fall

Gold price on knife edge after post-Fed fall

Spooked by Federal Reserve's hawkish stance, hedge funds start liquidating 345 tonnes worth of bullish gold futures positions
Yesterday on the Comex market in New York, gold futures with December delivery dates fell more than $30 an ounce from where it trading just before the Federal Reserve's interest rate announcement. By the end of the day gold had clawed back some of those losses, but on Thursday the metal was being sold off again.
Late afternoon Thursday gold was exchanging hands for $1,145.10 – down more than 3% from $1,183.50 ahead of the Fed statement and a three week low. Higher interest rates boost the value of the dollar and makes gold less attractive as an investment because the metal is not yield-producing.
While the Fed decided to keep interest rates unchanged it changed the language in the statement to suggest a hike in December is more likely. The market had begun to price in an increase only in March 2016 and gold bulls were forced into a retreat.
Failure to hold this level would attract some additional long liquidation as a break below $1,140 could signal a reversal of sentiment
The Fed voted 9 to 1 to leave rates in a range of zero and 0.25% where they have been since December 2008. Interest rates in the world's largest economy has not been raised in more than nine years which played a huge factor in gold's rise to a record $1,909 in September 2011.

Gold hit its highest level since June 22 a fortnight ago, amid fresh indications that a limp US economy may push a rate hike further into the future, but that narrative now seems to no longer apply.
On the technical front gold is also looking vulnerable.
Hedge funds reduced bullish bets to more than five year lows ahead of the September Fed decision, but the hold on rates then forced a change of thinking with large futures speculators or "managed money" playing catch-up as the sentiment towards gold turned.
Hedge funds built up net long positions – bets that gold will be more expensive in future – for five weeks in a row, tripling holdings over the past month.
Last week the  CFTC's weekly Commitment of Traders data showed net longs now stand at 12.2 million ounces (345 tonnes), the highest since February.
That constituted a huge reversal from July and early August when hedge funds entered net short positions for the first time since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.
Ole Hansen, head of commodity strategy at Danish bank Saxo says after yesterday's abrupt reversal the price of gold has so far managed to stay above the next level of support at $1,148 an ounce (only just), but "failure to hold this level would attract some additional long liquidation as a break below $1,140 an ounce could signal a reversal of sentiment":
Gold price on knife edge after post-Fed fall

Wednesday, October 21, 2015

Saturday, October 17, 2015

LME Zinc may recover and average $2,275 a ton in 2016: Deutsche Bank

LME Zinc may recover and average $2,275 a ton in 2016: Deutsche Bank
Deutsche Bank's bull case on zinc had been severely dented over the past three months. 

A strong USD combined with Chinese demand fears has seen a build of shorts on the LME, and prices collapse by $800 a ton since the beginning of May.

Glencore’s bold step of closing a similar amount of capacity is likely to squeeze out short positions, and lead to a deficit market of c.500kt in 2016E. 

This would be the fifth year in a row of zinc deficits, and Deutsche Bank forecasts the zinc price to recover and average $2,275 a ton in 2016E.

However, zinc prices at London Metal Exchange settled down by 0.64% to $1805.50 a ton on Thursday, while inventories down by 1050 tons to 587200 tons.

Wednesday, October 14, 2015

Zinc price rally has further to go

Zinc price rally has further to go
The mood at the metals world's number one annual gathering – LME Week – appears to be one of cautious optimism.
A survey of 400 metals and mining investors polled by Macquarie at the London summit returned a moderately bullish view of the next 12 months for base metals.
Platts quotes Macquarie's head of commodity research Colin Hamilton as saying "despite the ongoing and conspicuous issues for fundamentals across base metals markets, the overall mood was not as bearish as we might have expected":
"While concern over Chinese economic growth and metals demand was clear, the consensus for growth, albeit slower, persisted," he added.
Zinc was the top pick among the delegates with the consensus view that the metal would be trading at $2,000 a tonne in a year's time, up by double digits from today's ruling price.
Glencore may also ride to the rescue of nickel with speculation rife that the Swiss mining and trading giant is on the brink of announcing supply cuts
Glencore said last week it would slash its zinc output by over a third or 500,000 tonnes, most of it in Australia, after the price of the industrial metal fell to a five-year low leading to a 10% jump in the price on Friday.

Copper was also expected to strengthen adding $500 to todays's price around $5,300 over the next year, while tin should continue its good run holding onto its gains around $15,000 a tonne.
Aluminum was considered the worst bet with predictions of a fall to $1,450 a tonne by this time next year.
Last year's favourite, nickel also found no love with forecasts of further losses to $9,650 a tonne compared to today's LME ask of $10,460 a tonne.
But here Glencore may also ride to the rescue with speculation rife that the Swiss mining and trading giant is on the brink of announcing cuts at its operations in Canada, Australia, New Caledonia and elsewhere. Glencore is the world's fifth largest producers of the steelmaking raw material.
During the boom years copper was the top pick among summit attendees for five years in a row before switching to lead and tin in 2013.

Monday, October 12, 2015

Gold price just $15 away from major rally

On Friday, gold bulls were off to the races, spurred by a turnaround in sentiment towards commodity markets and fresh indications that a rise in US interest rates may be further off than previously thought.
On the Comex market in New York, gold futures with December delivery dates traded up as much 1.3% at $1,159.30, the highest since August 21. Gold is up 5% from where it was trading before the US Federal Reserve at its September meeting decided to hold rates steady. The last time rates were hiked was June 2006.
The week before hedge funds more than doubled net longs which now stand at just under 5 million ounces, the highest since April
Gold's leg up on Friday came after Fed minutes released yesterday suggested that the US economy will grow well below historical averages for the rest of the decade. The central bank estimates growth of around 1.7% through 2020 versus average growth of 3.1% over the past 50 years.

The dollar and gold, and bond yields and gold, have strong negative correlations and on Friday the greenback fell against the currencies of its major trading partners while treasury yields fell across the board.
Hedge funds were wrong-footed by the decision to keep interest rates near zero reducing bullish bets to more than five year lows ahead of the Fed decision.
But sentiment has now turned and according to the CFTC's weekly Commitment of Traders datafor the week to October 6 large speculators on Comex – referred to as "managed money" – added nearly a fifth to their bullish positions from the week before.
The week before hedge funds more than doubled net longs which now stand at just under 5 million ounces, the highest since April. Speculators also cut back on short positions – bets that gold could be bought cheaper in the future – reducing overall positions to 7 million ounces, down from record highs above 11 million ounces set in July.
We have argued that the first US rate hike could become a buying opportunity as it would remove the uncertainty that has prevailed for many months
In late July and early August, hedge funds entered bearish positions not seen since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.

Saxo Bank in its quarterly outlook released last week, said the "the eventual recovery in gold hinges on a change in sentiment among paper investors".
The Danish bank pointed out that most of the third-quarter rallies were driven by hedge funds covering short positions, first after the Chinese devaluation and second after the dovish Federal Open Market Committee statement on September 17. Friday's rally, in solid volumes, followed a similar pattern:
"The combination of a dovish Fed, uncertainty about China’s currency policy and the health of the global economy, as well as low investor involvement, may eventually be what triggers or forces a sentiment change. We have argued that the first US rate hike could become a buying opportunity as it would remove the uncertainty that has prevailed for many months. As we still wait for what potentially could be an elusive rate hike, some uncertainty will linger.
"But having seen three robust recoveries within a short period, we sense a change of sentiment is unfolding. Key to this would be a move above gold’s August high at $1,170/oz, which would confirm a floor has been established. We maintain our year-end target of $1,250/oz and only a break below $1,080/oz would bring a change to this outlook."
Click here for Saxo Bank's commodity insights and essential trades for the final quarter of the year.
Gold price just $15 away from major rally

Saturday, October 10, 2015

How Glencore production cut will affect Zinc?

How Glencore production cut will affect Zinc?
LME zinc surged by about 2% to climb above $1,700 per ton, and the most actively-trade zinc contract on the SHFE also rose to around 14,000 yuan per ton after Glencore’s cut news.

Glencore said on Friday it will cut 500,000 tons, around one third of its annual zinc output, of global zinc production due to low prices.

How Glencore’s cut news will affect zinc market?

“Zinc prices, in the short term, will get a boost from the cut news, but its weak fundamentals will not allow a sustainable price rise,” an analyst from Guosen Futures told SMM in the latest interview.

Poor zinc consumption in China, due to a slowing economic growth, is the leading reason behind sluggish zinc prices, the analyst pointed out.

“Weak demand is now in marked contrast to high utilization rates at domestic zinc smelters facing high TCs, especially when a traditionally peak demand season in October also fails to materialize so far this year,” the analyst explained.

The global zinc market is also not in good shape, despite no big rise or even a slight drop in LME zinc inventories, as unreported zinc inventories are estimated to be huge.

Over 500 jobs lost as Glencore suspends zinc operations in Australia

Over 500 jobs lost as Glencore suspends zinc operations in Australia
Glencore will temporarily suspend operations at Lady Loretta and reduce production at George Fisher and McArthur River operations, the company announced on Friday.
ABC News reports that 242 workers will lose their jobs at Lady Loretta Mine while while 224 positions will be lost from George Fisher, and 69 at the McArthur mine.
The closures gave zinc a bump. The Wall Street Journal says zinc rose 6.7% on the London Metal Exchange today.
Before the news, zinc had dwindled to a five year low, dropping to 72 cents USD/lb late last month. The metal had a 52-week high of $1.09 USD/lb.
Glencore plans to reduce annual zinc metal mine production across its operations in Australia, South America and Kazakhstan by approximately 500,000 tonnes or one-third. There was no news on how operations outside of Australia would be impacted.
"Glencore remains positive about the medium and long term outlook for zinc, lead and silver, however we are taking a proactive approach to manage our production in response to current prices," said the company in a statement.
The company said it has invested over $1 billion across our zinc operations, and it will continue to fund several large scale projects at our operations.
The company regrets the closures.
"These changes, although temporary, will unfortunately affect employees at our operations. This decision has not been taken lightly. In the coming days we will engage with all employees and put in place support services to assist our people who may be affected as a result of these changes."
Lady Loretta—a zinc (sedimentary exhalative) deposit, with additional occurrences of copper, lead, and silver—is located in Australia about 140km NNW of Mt Isa. The mine is an underground operation, employing long-hole stoping technology.

Friday, October 9, 2015

Copper mining's deepening costs crisis

Copper mining's deepening costs crisis
GFMS Thomson Reuter's closely watched annual base metals review and outlook contains some stark warnings for copper miners.
The industry has made progress to reduce costs – since the first quarter of 2014 average cash costs have dropped by $303 a tonne according to GFMS calculations.
Over the same period the price of copper is down by $998 a tonne. And since the end of the June quarter of 2015 (the scope of the report) copper is down another $1,000.
It seems unlikely that the pace of cost reduction can improve much from the relatively modest pace of the last few quarters
GFMS says at the August low of $4,888 a tonne (a six-year low visited again at the end of last month) 10% of the industry is losing money on a cash basis.

But consider total costs (a better proxy for sustaining production levels at mines) and 47% of the industry is unprofitable at a 2009 copper price.
While costs have been reduced by 8% since the start of 2014, in Q2 2015 cash costs for the industry actually creeped up fractionally over the first quarter.
The inability of copper miners to make deeper cutbacks was despite a 50% fall in the price of crude oil and a sharp depreciation of producer country currencies against the dollar (on average more than 15% says GFMS) over the period. The usual culprit when it comes to rising costs in copper mining – falling grades – were relatively stable.
And the outlook is not all that rosy for the cost curve to lower much more:
"While cash costs may benefit from the lag in the transmission of lower energy prices, it seems unlikely that the pace of cost reduction can improve much from the relatively modest pace of the last few quarters.
"If copper prices continue to languish, additional cuts in sustaining capital are likely in the coming months, which will clearly impact the future production profile. We expect noise levels to increase in the coming months as the industry announces cuts to mine production and capital budgets, but how much of that translates into mine closures and/or a meaningful reduction in volumes remains to be seen."

Monday, October 5, 2015

Why India Might Finally Begin To Get Its Commodities Game Together

Why India Might Finally Begin To Get Its Commodities Game Together
India is a commodity powerhouse. It is the largest producer or consumer for commodities that range from milk, pulses and spices to gold, edible oils and industrial crops. It is second largest producer of sugar, rice and cotton. And yet, instead of dictating terms, we follow the prices set overseas for them. What stops us from taking our rightful place in the global order? The feebleness of our market.

The power of any market comes from its ability to set the benchmark price that acts as the reference for all other trades around the globe, whether it is London for physical gold or New York for cotton. India's commodity markets have been illiquid, ill-equipped and ill-connected ever since their inception in 2003 due to a combination of outdated laws and ill-informed policymakers.
Now, 12 years later, this is set to change. SEBI has taken over as the new regulator and guardian of the commodity market, which will now be governed by the Securities Contracts (Regulation) Act, 1956, applicable to stock exchanges. India's commodity markets have a fighting chance to emerge from the shadows.
Here are five steps SEBI can take to make it happen.
1. Create policy stability
Commodity exchanges need a conducive ground created by surrounding institutions such as the government, the banking framework and corporate law. Commodity trading has been frequently disrupted by bans and mid-air changes in trading rules. This destroys market confidence despite a strong regulator. As an independent regulator, SEBI should seek a commitment from Central and state governments to adopt transparent and predictable rules for direct interventions, such as changes in trade policies, procurement operations and trading rules. To prevent panicky reactions, it has to rapidly educate the media, politicians, bureaucrats and the public about the role and mechanics of commodity exchanges.
"SEBI has a historic opportunity to create a wide and enduring economic moat around our commodity markets through sophistication and scale."
2.Consolidate volumes by expanding the network
Size begets power. Commodity exchanges benefit from strong "network effects". These mean that more members are better--the more trades exchanges handle, the more liquidity they can provide and the more activity they attract. By connecting hedgers, government companies such as FCI, and farmer bodies, to generate trade volumes that are in multiples of crop production, SEBI can improve price discovery and make the market more efficient.
3. Build scale by allowing better quality of investors and speculators
A large market to which producers, dealers, manufacturers, and speculators converge makes a contract as liquid as a stock certificate or a coupon bond. Allowing banks, mutual funds and large foreign investors to enter the commodity market will improve its risk-insuring function.
4. Connect to overseas markets
Today, no market is an island. In a hyper-connected world, India will only gain if its commodity contracts are listed on overseas exchanges reciprocally so that they are quickly accepted as a reference price.
5. Create a cost advantage
Compared to overseas markets, it is expensive to trade in India. The commodities transaction tax, local state taxes, high brokerage fees and high cost of physical delivery due to poor logistics have made costs a deterrent. SEBI will have to scrutinise each one so that market participants are attracted by favourable terms and remain loyal due to the high cost of switching business away from India.
In 2014-15, 10 out of the top 20 agricultural contracts by volume were traded on exchanges based in China, according to data from the US's Futures Industry Association. CME's Chicago Board of Trade was the leading agricultural futures market outside China. Precious metals are dominated by the Comex gold and silver contracts traded at CME's New York Mercantile Exchange. The Shanghai Futures Exchange is emerging as an important centre for gold and silver trading in Asia.
India has a natural competitive advantage in a wide swathe of this global commodity market. But it remains untapped because little attention has been paid on how to fight competition. SEBI has a historic opportunity to create a wide and enduring economic moat around our commodity markets through sophistication and scale. If it is successful, India--with its 52 million farmers and 1.2 billion consumers--can finally stand up to take its rightful place in the world of food and natural resources.
SOURCED FROM :- Huffingtonpost.in