Mumbai: Commodities market operator Multi Commodity Exchange of India Ltd (MCX) is set to launch aviation turbine fuel, or ATF, futures contracts in July, which could help refiners and airlines facing trouble in a turbulent oil market.
“We have received permission from the Forward Markets Commission (the commodities market regulator) and will firm up plans shortly to launch ATF futures contracts,” said MCX managing director Joseph Massey. “We are in touch with leading airline companies for hedging,” he added.
Tricky situation: A Jet Airways plane refuelling at the New Delhi airport. Carriers are facing uncertainty over fuel price and supply.
Oil refining companies and airlines are hedging in MCX crude oil contracts, which has a 90% correlation with ATF futures, Massey said.
The increasing cost on fuel and the uncertainty over its supply are putting pressure on the aviation sector. Futures contracts can reduce the uncertainty as they will make it an obligation for the seller to supply the underlying commodity, in this case ATF.
With the country seeing a spurt in air traffic, both domestic and international, there has been a steady rise in fuel demand. Airlines are looking at hedging on long-term contracts with refineries. In the absence of such contracts, aviation firms buy in spot markets.
ATF is a specialized type of petroleum-based fuel used to power aircraft.
India produces 78,05,000 tonnes of ATF and exports 36,62,000 tonnes.
Oil companies regularly change ATF price, which is not regulated in India, with a close parity with international crude oil prices.
ATF prices internationally have gone up from $46 (around Rs2,007 then) a barrel in January 2005 to $122 in May, and consumption rose 77% in fiscal 2007 over fiscal 2001.