Deora to kick start 'Future Trading' in Natural Gas @ MCX onJuly 10

By Staff
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Google Oneindia News

Mumbai July 8 (UNI) In what is likely to bring a major change in the energy sector in the country, Union Minister for Petroleum&Natural Gas Murli Deora is set to launch forward contracts in natural gas by the Multi Commodity Exchange (MCX) here on Monday.

The MCX, which has already received approval for it from the Forward Markets Commission, has decided to link these contracts to 'Nymex', a benchmark of New York Commodity Exchange, sources here today said.

The delay in the launching of this trading was ascribed to FMC which was insisting on the launch of a delivery-backed contract for better price relevance in the Indian markets in the absence of a local spot market and lack of interest from service providers.

The MCX had earlier unsuccessfully tried to rope in Gujarat State Petronet Ltd(GSPL) as a service provider, sources said, adding that a similar attempt by the National Commodity and Derivatives Exchange Ltd too proved futile.

However, some experts point out that unlike crude oil, natural gas has no global price benchmarks and so contracts linked to Nymex may not help any price discovery for natural gas in the Indian context.

It may be recalled that futures trading perform two important functions of price discovery and price risk management with reference to the given commodity.

It is useful to all segments of the economy right from producer to consumer. In the sense, producer can get an idea of the price likely to prevail at a future point of time and therefore can decide between various competing commodities that best suits him.

Similarly, consumer gets an idea of the price at which the commodity would be available to him at a future point of time. This helps him to do proper costing and also cover his purchases judiciously by making forward contracts.

Forward/futures trading involves a passage of time between entering into a contract and its performance making thereby the contracts susceptible to risks, uncertainties, etc.

Currently, futures trading is permitted in 103 commodities. Apart from the three national level commodity bourses, there are 21 other regional Exchanges recognised for commodity futures trading. The trading volume and value in the past two years have increased manifold.

During 2005-06, permission to trade in furnace oil, crude oil, mentha oil, PVC, polypropylene and natural gas was granted.

During fiscal 2006, the total value of commodity futures trade was Rs 21.34 lakh-crore as compared to Rs 5.71 lakh-crore during the previous year showing an increase of 274 per cent. The volume of trade has also gone up to 6685 lakh tonnes during 2005-06 as compared to 1942 lakh tonnes during 2004-05. The trade volume has also gone up by 244 per cent during 2005-2006.

UNI CP/AR/SN ADG VKG1750

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