Financial Daily from THE HINDU group of publications
Tuesday, Apr 18, 2006
Agri-Biz & Commodities
Oilseeds & Edible Oil
Soyabean oil futures prices turn volatile
Spot prices are at least Rs 15 lower
Supplies adequate, demand is stable
Many blame the Exim policy
No genuine shortage in the country
Mumbai , April 17
With utter disregard for demand-supply fundamentals, prices of soyabean oil at various commodity futures exchanges are on the rise, thanks to the Government willy-nilly allowing speculators a free run.
At the National Board of Trade in Indore, where soyaoil futures contracts are traded, prices have in the last several days displayed volatility not seen in recent past.
For many days now, soya oil May contract has been trading well above Rs 400 per 10 kg trading lot, while spot prices are at least Rs 15 lower.
"There is absolutely no valid justification for the market to have become so volatile suddenly," asserted a trader. Those closely following the vegetable oil market point out that conditions in both international and domestic markets hardly justify a sharp rise in soya oil prices.
Supplies are adequate and demand is stable, both overseas and within the country. However, domestically, soyabean oil is displaying a contrarian trend due to a sudden spike in prices not related to market conditions.
Exim policy blamed
Many blame the recently announced Exim policy for allowing speculators to hijack the market. Soya oil importers are expected to take permission from the Government and declare whether or not the imported consignment is crushed out of genetically-modified soyabean.
"While declaring the policy, the Government should have simultaneously announced guidelines for seeking approval and related procedures.
In the absence of any clarity, importers are at a loss to know exactly how the system would work.
This uncertainty has encouraged speculators to push prices up," lamented a trade intermediary.
Some of the market participants have begun to complain about unchecked speculation in the bourse driving away genuine traders. Those with stocks have made windfall gains over the last 10 days, while consumers are forced to pay a higher price.
The role of unchecked speculation in the bourses is evident from the fact that while soyaoil prices have spiked, soyabean prices have remained more of less stable. Had there been a genuine shortage in the country, both soyabean and soya oil prices would have gone up, a trader commented.
It is unclear how the Central government, which claims to be concerned about inflation, is viewing the incident. It would be naïve to believe that rising soya oil prices would support the ongoing rapeseed/mustard harvest.
Questions are now raised about the exchange's role in containing undue volatility. Some are also wondering about the course of action that may have to be adopted by the futures market regulator - Forward Markets Commission. Some traders are reportedly planning to meet the regulator on this issue.
The sooner the Government comes out with clear guidelines for import of soyabean oil the better for the entire vegetable oil market, according to a cross-section of industry and trade.
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