Date:26/02/2007 URL: http://www.thehindubusinessline.com/2007/02/26/stories/2007022603240100.htm

Back Sugar mills begin hedging risks in futures market

M.R. Subramani
Suresh P. Iyengar

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Corporates were actively taking part in futures trade and sugar contracts were one of them.
DUE TO higher interest insugar futures, NCDEX recently introduced more points of delivery.

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Chennai/Mumbai Feb. 25 Faced with falling prices and a production glut, sugar mills have begun to hedge their risks in the futures market. "Sugar companies are making forward sales in the futures market. At least 30-40 mills are actively trading in the commodity," said an official of NCDEX.

The NCDEX Managing Director, Mr P.H. Ravikumar, told Business Line that corporates were actively taking part in futures trade and sugar contracts was one of them. He, however, declined to reveal the name of the companies taking part in forward sales. "Not just sugar, companies are also participating in forward contracts of wheat and other commodities," he said.

During December-January, the daily volume (one-way) in sugar contracts was about 35,000-40,000 tonnes. "This is a 15-20 per cent lower than the volume witnessed during the same period a year ago," said Ms Sanvali Kaushik, Vice-President (Products) of NCDEX. Asked if taking part in futures would have an effect on the monthly quota of sugar fixed by the Centre for mills to sell in the open market, she said it would come into play when physical delivery was made. However, deliveries were restricted to 2,500 tonnes a party or person and, therefore, it would not count much.

In view of the increasing interest in sugar futures, NCDEX recently simplified the contracts and introduced more points of delivery to ensure level-playing field for all the participants.

Trade sources said at least five big sugar companies were taking part in futures but declined to divulge the names. Some of the private mill players seem to be unhappy over the development saying: "They (the participants) shouldn't be doing this when the sector is facing one of its worst crisis."

Mills participation

According to Mr Prakash Naiknavare, Managing Director of the Maharashtra State Co-operative Sugar Factories Federation, three mills of their association were taking part in the futures. "We are in favour of mills participating in the forward market. Since we are facing crisis, it is important for the mills to look for every opportunity to make profit. In fact, we would like many more mills from our federation to take part in forward trading," he said.

However, a problem with regard to sugar futures is that the counter for medium sugar is more active than small sugar. "This puts at disadvantage mills mainly in Maharashtra co-operative sector," trade sources said. During the weekend, medium sugar was quoted at Rs 1,424-1,534 a quintal in Mumbai. On NCDEX, the grade was quoted at Rs 1,493 for March contract and Rs 1,443 for April contract.