CPO hedgers’ meet jointly organized by MCX & IVPA

Delhi: Multi Commodity Exchange of India Ltd (MCX) and Indian Vanaspati Producers’ Association (IVPA) jointly organized a hedgers’ meet for Crude Palm Oil (CPO) value chain participants in Delhi on Monday, September 21, 2015. The meet was categorically targeted towards enhancing CPO stakeholders’ participation in the commodity futures market, and spreading awareness on hedging CPO price exposures.

During the programme, various aspects concerning CPO were discussed, while keeping the focus on hedging. The experts from MCX briefed the market participants about CPO futures and its innumerable benefits such as smaller contract size, efficient price discovery, good hedging efficiency, liquidity, and lowest transaction charges among others. They further elaborated on the key price influences of palm oil such as demand and supply, global and domestic factors.

CPO obtained from fresh fruit bunches of oil palm, is mainly grown as a plantation crop in Malaysia and Indonesia, together these two countries contribute significantly to India’s palm oil imports. Owing to its cost effectiveness, India and China, the world’s two largest importers and consumers of the oil, meet their vegetable fat needs through it. Low cost also influences increasing commercial food industry use. Moreover, as a non-food ingredient, palm oil finds application in the production of cosmetics, toiletries, soaps and detergents.

Palm oil has a significant presence in India’s edible oil consumption basket, as nearly 40 per cent of India’s annual edible oil requirement is met by palm oil, almost all of which is imported. In fact, in the annual edible oil import basket, palm oil tops the list (around 77%). The major ports for palm oil imports are Kandla, Haldia, Krishnapatanam, Chennai, JNPT, Kakinada, Mundra, and Mangalore.

During the first ten months of the current oil season, November 2014 –August 2015, India imported 6.25 million tonnes of CPO valued at Rs. 27,355 crore. During this period, annualized volatility in CPO spot prices was as high as 15.1 per cent, a considerable risk to the value chain participants of this commodity, necessitating them to hedge.

Mr. Sanjay Gakhar, Vice President-Business Development, MCX said, “The CPO futures contract offered on MCX was designed after much deliberations and consultation with its stakeholders, including processors and importers, so as to meet their hedging requirements—price discovery and risk management.”

“CPO stakeholders can safely hedge on MCX, where the contract has a high correlation of more than 93% with the palm oil contract prices at Bursa Malaysia Derivative Exchange, the global benchmark for palm oil prices. Both large and small stakeholders of CPO value chain thus can ensure stable profits by hedging their oil price risks through CPO futures traded on the MCX platform. Besides, the contract is denominated in Indian Rupees; hence it also absorbs the currency risk of trading in this international commodity”, he added.

Mr. Sushil Goyal, President, Indian Vanaspati Producers’ Association said, “Since the last few years, commodity exchanges such as MCX have showcased how these regulated platforms offer immense benefits and advantages to the commodity market participants, including the CPO stakeholders. From a transparent price discovery mechanism to lower margins and most importantly, effective price risk management, CPO futures help them manage the risks associated with price uncertainties and volatilities.