NCDEX plans coal futures trading

Contract may be launched in the second half of this year.

The National Commodity & Derivatives Exchange (NCDEX), India's largest agricultural commodity trading platform, is planning to begin futures trading of coal contract in the second half of 2008. The contract would be the first of its kind in India.

"Coal is the next product which we are working on as a part of our effort to our diversify from agri to non-agri commodities. The contract's feasibility study is in progress," said P H Ravikumar, managing director and chief executive officer of the exchange, on the sidelines of the launch of the certified emission reduction (CER) contract in Mumbai on Thursday.

"Thousands of coal varieties exist in India and, like steel, it is difficult to categorise one quality for trading. Our contract, however, would be of high quality coal and not necessarily normal or coking coal," said Ravikumar.

Indirectly refering to coking coal, he said, "We are planning to launch a product which is presently imported in India."

Coking coal, which forms 50 per cent of the total raw material cost for steel, is imported on mutually agreed terms between buyer and seller in the absence of a global platform.

Since it is a rare commodity, the price of the contract is often inflated. The launch of the coking coal contract lead to better price discovery while negotiating with producers.

The exchange wants to provide a globally referenceable price display for domestic players which would help hundreds of steel producers to negotiate prices better in the over-the-counter (OTC) market.

"The volume of coking coal is very small but the value is high. On the flip side, the volume of normal coal is very high but value low. Therefore, we are planning to draw a line where the interest of participants would be taken care of," an exchange official said.

According to market sources, India produced about 400 million tonnes of coal, including the thermal variety, and 70 million tonnes of coking coal in the 11-month year period ended February 29, 2008.