Heavy imports into the polymer market is not only changing the demand supply scenario in the domestic market but also giving rise to newer products and avenues for its users to change the way for trading the commodity.
From a sellers market, one of the polymer segment - the polyvinyl chloride (PVC) is slowly graduating to becoming a buyers’ one. Taking this opportunity, the National Commodity and Derivatives Exchange (NCEDX) has decided to relaunch futures contracts on PVC after a gap of four years. Official sources said the exchange has already applied to the Forward Markets Commission (FMC) for approval for six-month contract.
Explaining the move, officials sources said in 2007, the PVC contract suffered from logistics problem since physical delivery was at two places, Bhiwandi in Maharashtra and Delhi. This time the contract will have one place for physical delivery — New Delhi. Besides, we have chosen PVC since there is a large dependence of the local users on imports which gives rise to price risk. In other two categories, polyethylene (PE) and polypropylene (PP), the price decided by the major petrochemical manufacturers is fixed and thus less volatility. It could be looked into at a later date, they added.
“The market is vibrant in north as far as price volatility is concerned. Unlike east, west, south where there are domestic PVC manufacturing companies and suppliers, north does not have one. Therefore, traders and local users of PVC pipes and other things are mostly dependent on imports which are working out cheaper. Therefore it is a good opportunity to set up a trading platform so that end-users like PVC traders and users could hedge against price fluctuation as well as trade for a better price of the product.
The contract will be priced on basic value and other items like local excise duties, taxes will be loaded upon physical delivery, sources said. Some time back, PVC users had few option than to accept the price fixed by major local manufactures of PVC like RIL, Finolex industries or Chemplast. However with global slowdown, countries in EU and the US are dumping their product in India where there is a huge demand-supply gap.
“Even when these products were available earlier, international price was very high and quite unaffordable. Now, prices have become cheaper as global supply outpaces demand so much so that the price difference between the local PVC and imported ones ranges from Rs 1-2 a kg at any given time. This dependence of local PVC users on imports has opened the scope of price risk arising out of exchange rate and difference between price of international and domestic supply. Here is where a contract may help in hedging for basic price risk, better price discovery and trading,” a local PVC supplier said.