In this presentation we have listed down the basics of Indian commodity market which can be useful for beginners.

1. INTRODUCTION OF COMMODITY
MARKET IN INDIA

2.  The evolution of the organized futures market in India
commenced in 1875 with the setting up of the Bombay
Cotton Trade Association Ltd. Following widespread
discontent among leading cotton mill owners and
merchants over the functioning of the Bombay Cotton
Trade Association, a separate association, Bombay Cotton
Exchange Ltd., was constituted in 1983.
 Futures trading in oilseeds originated with the setting up of
the Gujarati Vyapari Mandali in 1900, which carried out
futures trading in ground nuts, castor seeds and cotton.
The Calcutta Hessian Exchange Ltd. and the East India
Jute Association Ltd. were set up in 1919 and 1927
respectively for futures trade in raw jute.

3.  Futures markets in Bullion began in Mumbai in 1920,
and later, similar markets were established in Rajkot,
Jaipur, Jamnagar, Kanpur, Delhi and Calcutta. In due
course, several other exchanges were established in
the country, facilitating trade in diverse commodities
such as pepper, turmeric, potato, sugar and jaggery.
 The futures trade in spices was first organised by the
India Pepper and Spices Trade Association (IPSTA) in
Cochin in 1957. However, in order to monitor the price
movements of several agricultural and essential
commodities, futures trade was completely banned by
the government in 1966.
 Subsequent to the ban of futures trade, many traders
resorted to unofficial and informal trade in futures.
However, in India‘s liberalization epoch as per the June
1980 Khusro committee‘s recommendations, the

4. REGULATING BODY
 The commodity futures traded in commodity exchanges
are regulated by the Government under the Forward
Contracts Regulations Act, 1952 and the Rules framed
there under. The regulator for the commodities trading is
the Forward Markets Commission, situated at Mumbai,
which comes under the Ministry of Consumer Affairs
Food and Public Distribution.
 Forward Markets Commission (FMC):- It is statutory
institution set up in 1953 under Forward Contracts
(Regulation) Act, 1952. Commission consists of minimum two
and maximum four members appointed by Central Govt. Out
of these members there is one nominated chairman. All the
exchanges have been set up under overall control of Forward
Market Commission (FMC) of Government of India. During

5. Snapshot of Indian Commodity
Market
Two Major Commodities Exchange in
India
MCX (Multi Commodity Exchange)
NCDEX (National Commodities &
Derivatives Exchange

6. MCX (Multi Commodity Exchange)
 Multi Commodity Exchange of India Ltd (MCX) is a
state-of-the-art electronic commodity futures exchange.
The demutualised Exchange has permanent recognition
from the Government of India to facilitate online trading,
and clearing and settlement operations for commodity
futures across the country.
 MCX offers more than 40 commodities across various
segments such as bullion, ferrous and non-ferrous
metals, energy, and a number of agri-commodities on its
platform. The Exchange introduces standardized
commodity futures contracts on its platform.
 MCX has been certified to three ISO standards
including ISO 9001:2008 Quality Management System
standard, ISO 14001:2004 Environmental Management

8. National Commodity and Derivatives
Exchange
 National Commodity & Derivatives Exchange Limited
(NCDEX) is a professionally managed on-line multi
commodity exchange. The shareholders of NCDEX
comprises of large national level institutions, large
public sector bank and companies.
 NCDEX is a public limited company incorporated on
April 23, 2003 under the Companies Act, 1956. It
obtained its Certificate for Commencement of Business
on May 9, 2003. It commenced its operations on
December 15, 2003.
 NCDEX is regulated by Forward Markets Commission.
NCDEX is subjected to various laws of the land like the

9.  NCDEX headquarters are located in Mumbai and
offers facilities to its members from the centers located
throughout India.
 The Exchange, as on February 9, 2012 offered
contracts in 34 commodities - comprising 23
agricultural commodities, 6 precious metals, 2 energy,
1 polymer and 2 other metals. The top 5 commodities,
in terms of volume traded at the Exchange, were Soya
oil, Gaur Seed, Chana, RM seed and Guar gum.
 NCDEX the country's second largest commodity
derivatives exchange, has been listing contracts since
2003.
 The NCDEX ranked number 32nd in 2010 in the
Futures Industry Association's global list of top 53
derivatives exchanges measured by volume, rising
34.16% on 2009 volume

10. As of 2011, India’s TOP commodity
exchanges are:
 National Multi-Commodity Exchange (NMCE).
 Multi Commodity Exchange (MCX).
 Indian Commodity Exchange ICEX.
 ACE Derivatives and Commodity Exchange ACE

11. Size of the Market
 The trading of commodities includes physical trading of
food items, Energy and Metals, etc. and trading of
derivatives.
 In the five years up to 2007, the value of global physical
exports of commodities increased by 17% while the
notional value outstanding of commodity OTC
derivatives increased more than 500% and commodity
derivative trading on exchanges more than 200%.
 Agricultural contracts trading grew by 32% in
2007,energy 29% and industrial metals by 30%.
 Precious metals trading grew by 3%, with higher
volume in New York being partially offset by declining
volume in Tokyo.

12. Commodity Markets have their presence in country
for over 120 yrs.
Trade in commodities has been Unorganized in
Regional markets & Local Mandis.
Trading in Futures Contracts has been permitted in
over 120 commodities.
Physical commodity market size in India is estimated
to be around 25 lakh core per annum.
Major commodities traded in India are - Gold, Silver,
Crude Oil, Copper, Guar, Chana, Spices, among the
few.

13.  Ban in forward trading from mid-sixties
 Prior to ban
 Thriving commodity exchanges for cotton, gold,
edible oils etc.
 More than 20 regional commodity specific
exchanges
 Recent developments
 Ban completely lifted in 2003
 Emergence of national level de-mutualised online
multi-commodity exchanges
 3 National and 21 regional exchanges
 Trade in 60 commodities compared with just 8 in
2000

14. Benefits of commodity Future
Markets.
 Price Discovery:-Based on inputs regarding specific
market information, the demand and supply equilibrium,
weather forecasts, expert views and comments, inflation
rates, Government policies, market dynamics, hopes and
fears, buyers and sellers conduct trading at futures
exchanges. This transforms in to continuous price
discovery mechanism.
 Price Risk Management: - Hedging is the most common
method of price risk management. It is strategy of offering
price risk that is inherent in spot market by taking an
equal but opposite position in the futures market. Futures
markets are used as a mode by hedgers to protect their
business from adverse price change. This could dent the
profitability of their business. Hedging benefits who are
involved in trading of commodities like farmers,

15.  Import- Export competitiveness: - The exporters can
hedge their price risk and improve their competitiveness
by making use of futures market. A majority of traders
which are involved in physical trade internationally
intend to buy forwards. The purchases made from the
physical market might expose them to the risk of price
risk resulting to losses.
 Benefits for farmers/Agriculturalists: - Price
instability has a direct bearing on farmers in the
absence of futures market. There would be no need to
have large reserves to cover against unfavorable price
fluctuations. This would reduce the risk premiums
associated with the marketing or processing margins
enabling more returns on produce. Storing more and
being more active in the markets. The price information
accessible to the farmers determines the extent to
which traders/processors increase price to them. Since
one of the objectives of futures exchange is to make

16. GROWTH IN THE COMMODITY MARKET AS
COMPARED TO THE EQUITY MARKET
 The Indian commodity futures volumes have grown 5.5
times from Rs.20.53 trillion in 2005-06 to Rs.112.52
trillion in 2010-11
 Currently, the average monthly volume on the Indian
commodity exchanges is Rs.6 trillion. MCX leads the
industry, followed by NCDEX.
 MCX is not only number one in India but has achieved
some global milestones too. It was the largest exchange
in silver (in terms of number of futures contracts traded
in 2010), number two in gold, copper and natural gas
and number three in crude oil. When we say India is the
largest exchange in silver, it is a great achievement for
the Multi Commodity Exchange.

17.  Talking about agricultural commodities, the Indian
commodities market has futures contracts of
commodities such as black pepper, cumin seed,
mentha oil and many more which are internationally
traded but only listed in India; internationally traders
tend to consider these as benchmark rates.
 Foreign institutional investors, domestic institutions,
banks and insurance companies are not allowed to
trade on the Indian commodity bourses and a majority
of volumes come from jobbers, arbitrageurs, retail
traders and small scale enterprises and corporate (for
hedging). Even portfolio management services are not
permitted.
 We expect the Indian commodity futures market to
reach at least 15x-20x by FY15. With the contribution
of Indian physical commodities to GDP being pegged
at 45%, even if the commodity futures market trades
at 15x-20x, we can imagine the kind of volumes our

18. List of Traded Commodity
 Agricultural (Grains, and Food and
Fiber)
 Livestock & Meat
 Energy
 Precious metals
 Industrial metals

19. Agricultural Products:-
 Corn, Oats, Rough Rice, Soybeans, Rapeseed,
Soybean Meal, Soybean Oil, Wheat, Cocoa, Coffee,
Cotton No.2, Sugar No.11,Sugar No.14.
 Livestock and Meat:- Lean Hogs, Frozen Pork Bellies,
Live Cattle, Feeder Cattle.
 Energy:- WTI Crude Oil, Brent Crude, Ethanol, Natural
Gas, Heating Oil, Gulf Coast Gasoline, RBOB Gasoline,
Propane, Uranium.
 Precious Metal:- Gold, Platinum, Palladium, Silver.
 Industrial Metals:- Copper, Lead, Zinc, Tin, Aluminum,
Aluminum alloy, Nickel, Aluminum alloy, Recycled steel

20. Commodity Exchanges
 Abuja Securities and Commodities Exchange
 Bhatinda Om & Oil Exchange Bathinda
 Brazilian Mercantile and Futures Exchange
 Chicago Board of Trade
 Chicago Mercantile Exchange
 Commodity Exchange Bratislava, JSC
 Dalian Commodity Exchange
 Dubai Mercantile Exchange
 Euro next life
 Intercontinental Exchange

21.  Minneapolis Grain Exchange
 Multi Commodity Exchange
 National Commodity and Derivatives Exchange
 National Multi-Commodity Exchange of India Ltd
 National Food Exchange
 New York Mercantile Exchange
 New York Board of Trade
 Rosario Board of Trade
 Steelbay
 Kansas City Board of Trad
 London Metal Exchange
 Winnipeg Commodity Exchange
 National Spot Exchange

22. Recent trends in Commodity
Market.
 The 2008 global boom in commodity prices - for
everything from coal to corn – was fueled by heated
demand from the likes of China and India.
 Speculation in forward markets.
 Farmers are expected to face a sharp drop in crop
prices as a result of bad rainfall.
 Other commodities, such as steel, are also expected to
fall due to lower demand

23. Future Contract
 Commodity and Futures contracts are similar as
"Forward" Contracts.
 Early days "future" contracts (agreements to buy now,
pay and deliver later) were used as a way of getting
products from producer to the consumer.
 These typically were only for food and agricultural
Products.• Now it is used for every metal.
 Future contract for commodity trading and for share
trading is all different from one another

24. CONCLUSION
 India is one of the top producers of a large number of
commodities, and also has a long history of trading in
commodities and related derivatives. The commodities
derivatives market has seen ups and downs, but seem
to have finally arrived now.
 The market has made enormous progress in terms of
technology, transparency and the trading activity.
Interestingly, this has happened only after the
Government protection was removed from a number of
commodities, and market forces were allowed to play
their role.
 This should act as a major lesson for the policy makers
in developing countries, that pricing and price risk
management should be left to the market forces rather

25. THANK YOU.
Bibliography:
 Google. For Images
 MCX & NCDEX official websites