The Hindu Business Line : Crude futures witness waning interest

Losing steam
Currently, the turnover in crude futures has dipped to Rs 251 crore.
Drop in liquidity deterring other hedgers.
All metals attracting higher investment.

Kolkata. May 9

The warnings issued by the Forward Markets Commission (FMC) on real-time trading have understandably taken the shine off crude futures in India.

According to the broking community, the risk hedgers who used to take simultaneous positions at overseas commodity exchanges (such as New York Mercantile Exchange) are fast shying away from Indian exchanges such as the Multi Commodity Exchange and the National Commodity and Derivative Exchange.

The WTI crude futures at the Multi Commodity Exchange (MCX) being the most popular among investors in crude futures is also the most-affected and witnessing a dramatic drop in investors' interest. Brent future at the NCDEX is also witnessing a lower turnover.

Fall in turnover

According to Mr Ajay Agarwal, Chief Dealer of East India Commodities Pvt Ltd, a comparison between October 2005 (when crude prices were on a previous high) and March-April 2006 reveal that daily turnover has recorded a "drastic fall".

According to him, as against Rs 700-crore daily turnover for the near contract on WTI crude in October 2005, the MCX recorded an average turnover of Rs 456 crore in March followed by Rs 348 crore in April. The daily turnover for the near contract in May is ruling at Rs 251 crore.

"The drop in liquidity is in turn acting as a deterrent for other risk hedgers to enter the market," Mr Agarwal added.

Situation worsens

While MCX authorities did not reply to queries on the issue, according to Mr Naveen Mathur, Head Commodities, Religare Comdex Ltd, the situation has further worsened as the high crude prices, holding at over $70 for quite some time, are making investors wary of a downside risk in taking positions and directing them to base metals and precious metals for better opportunities.

Interestingly both Mr Agarwal and Mr Mathur feel that the prevailing conditions are redirecting a large number of investors and (or) speculators from crude to the metals futures.

Apart from gold, which is holding good at a high price and recorded dramatic rise in daily turnover between March and April, "all base metals including aluminium, copper and are attracting higher investment," Mr Mathur said.