FUTURES TRADING :

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FUTURES TRADING A BOON TO OILSEED
SECTOR BY B. V. MEHTA Executive Director The
Solvent Extractors Association of India Mumbai
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INDIAN OILSEED SECTOR2004-2005

• Area under Oilseed Cultivation 25-26 Mn.ha
• Output of 9 Cultivated Oilseeds 25.10 Mn.T.
• Output of Cottonseed Copra 7.5 Mn.T.
• Total Oilseed Production ? 32.6 Mn. T.
• Production of Vegetable Oil 7.5 Mn.T.
• Import of Vegetable Oil 5.30
  Mn. T.
• (edible non-edible) Rs. 13,000 Cr
• Turnover of the Industry Rs. 60,000 Cr

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Indian Vegetable Oil IndustryPresent Status

• Nos. of Annual Capacity Segment Units
  Capacity Utilisation Mn.T

Oil Mills (Primary Crushing) 15000 36.0 30 Solven
t Extraction Plant 600 31.0 40 Vegetable Oil
Refiners 650 12.0 60 Vanaspati (Hydrogenated
Oils) 250 3.0 40
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Share of India

• World's Fourth Largest Vegetable Oil Rs. 60,000
  Cr.Economy - Turnover (USbn 12.5)
• Import Export Rs. 13,000 Cr.
• (USbn 3.0)
• Share in World's Oilseed Production 7
• Share in World's Oilmeal Production 7
• Share in World's Oilmeal Export 6
• Share in World's Production of Veg. Oils 6
• Share in Worlds Vegetable Oil Import 14
• Share in World's Edible Oil Consumption 10

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WHY IS FUTURES TRADING A BOON TO THE OILSEEDS
SECTOR?
PLAYERS
Primary Producers Oilseed Growers Processing
Units Oil Mills (Manufacturing
Units) Solvent Extraction Units Vegetable Oil
Refiners Vanaspati Producers Traders Wholesale
rs, Distributors Semi-Wholesalers,
Retailers Importers Exporters
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WHY IS FUTURES TRADING A BOON TO THE OILSEEDS
SECTOR?
RISK FACTORS

• Production Risk
• Quality Risk
• Supply Risk
• Payment Risk
• Price Risk

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GREATER RISK

• Increasing integration of the domestic market
  with the international market leads to increased
  uncertainty and greater risk.
• Players have limited control over management of
  risks such as production or quality risk.

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CHANGED SCENARIO

• Five years ago ? Large number of
  Restrictions
• Now ? Physical trade is more free than
  ever before

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FUTURES TRADING A BOON TO THE OILSEEDS VEG
OIL SECTOR
It helps the players in two important ways

• Price Discovery

Price Risk Management
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MARKET SITUATION

• Market Situation has become more competitive as
  players today are much better off / better
  equipped than their counterparts until a few
  years ago, because of futures trading facility.
• Infusion of funds will further add to the market
  volatility, making participation in futures
  trading absolutely necessary

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PRICE VOLATILITY
Rs. / Ton
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FUTURES TRADING AN EXCELLENT TOOL
Futures trading provides an excellent tool for
managing the most important risk, that is price
risk.
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EMERGENCE OF MODERN ONLINE TRADING EXCHANGES

• Good Liquidity
• Benchmark For The Spot Trade
• Risk in Storing Physical Goods Minimised
• Price Discovery Centers

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SUGGESTIONS TO MAKE FUTURES TRADING MORE VIBRANT

• Brokers engaged in commodity futures /
  derivatives trading should be extended the
  exemption from 10 TDS condition
• Loss arising from speculation in commodity
  futures trading should be allowed to be set off
  against business profit.
• Mutual funds, Financial Institutions and Foreign
  Institutional Investors should be allowed to
  participate in commodity futures.
• Rationalise stamp duty on futures contracts
• Introduce Warehouse Receipt system.

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Thank You
The Solvent Extractors Association of India A
Premier Association of Vegetable Oil Industry
Trade (An ISO 90012000 Certified
Organisation) 142, Jolly Maker Chambers No. II,
14th Floor, 225, Nariman Point, Mumbai 400
021 Tel [phone]. 2282 2979, Fax.
(91-22) 2202 1692 Email solvent_at_vsnl.com,
Website www.seaofindia.com