Ncdex plans raw sugar contracts

An Indian commodity exchange, part-owned by Goldman Sachs Group and Intercontinental Exchange, plans to trade raw sugar futures as output of the sweetener heads for a record in the second-biggest producing nation.

The National Commodity & Derivatives Exchange (Ncdex) would model the contract on the global benchmark offered by New York-based Intercontinental Exchange, Sanvali Kaushik, vice president at the Mumbai-based bourse, said in an interview today.

Commodity markets in India, the world's fastest growing major economy after China, are expanding offerings to boost volume and provide tools for hedging against price fluctuations. The South Asian nation is set to become a raw sugar exporter for the first time this year amid a record crop and a slide in prices of refined, or white, sugar.

"As Indian sugar mills are shifting a part of their output to raw sugar, futures will help them immensely,'' Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories, said. The body is a group of 250 producers.

Sugar output in India, second only to that of Brazil, may reach a record 30 million metric tonnes in the year to September 30, 2008, from an estimated 28 million tonnes this year, according to the federation. That's more than the 28.79 million tonnes estimated for 2008 by the US Foreign Agricultural Service in April.

Refined sugar prices in London have slumped by a third in the past year, forcing Indian producers to convert part of their sugarcane to raw sugar for exports to refiners in the West Asia, Southeast Asia and Africa.

Hedging tool
Indian Sugar Exim Corporation, an industry-funded trading firm, and other mills have contracted to export almost 600,000 tonnes of raw sugar in the year to September 30, 2008, according to the Indian Sugar Mills Association.

"Given the surplus in production, it makes sense for India to make raw sugar and a futures mechanism will give stakeholders a tool to hedge risk,'' said P H Ravikumar, chief executive of the National Commodity & Derivatives Exchange.

Still, the ban on foreign investors from trading on Indian commodity exchanges may limit volumes in the proposed contract because the biggest buyers raw sugar are based abroad, Narendra Murkumbi, managing director of Shree Renuka Sugars, India's biggest refiner, said.