The tyre industry is dominating the rubber futures trade, taking nearly 80% of the 36,148 tonnes of rubber delivered through the commodity exchanges over the first six months of 2007, according to Kailash Gupta, managing director of Ahmedabad-based National Multi-Commodity Exchange of India Ltd (NMCE).
This comes amid calls for a ban on futures trade of rubber, with charges that the growers are not benefiting from the trade while the user industry is not dependent on the platform.
But C.P. Krishnan, head of the commodities wing of commodity broking firm Geojit, rejects the charge. Statements that the user industry was keeping out of the futures market was contrary to facts, he said. A good number of the major tyre companies were members of the firm and were actively participating in the trade, Krishnan said.
Reji Jacob, managing director of broking firm JRG, said the transparency of the futures system coupled with the now quite active participation of the tyre companies has helped growers in getting a fair price for their commodity. Those opposing the trade appear to ignore market reality, he said, adding that the charge of speculation does not hold since the turnover in rubber is not all that big for major speculation.
But D. Ravindran, director general of the tyre companies’ organization, Automotive Tyre Manufacturers’ Association (Atma), said there was no reason for futures trade in rubber. Unlike other commodities, in rubber the farmer is well aware of the prices and at the farm-gate level has been getting around 94% of the price the dealer gets, which is not the case in any other commodity. This points to the existence of a price discovery mechanism that the futures market promises, he added.
“When a large section of the growers, dealers and consuming industry is not participating in the futures trade, which is now in the hands of a few speculators who make prices fluctuate according to their interests, there seems no reason for continuance of the trade,” Ravindran alleged. However, he admited that of late a few tyre companies are participating in futures trade, though not in a big way.
Countering the charge that growers are not participating in the trade, Siby Monipilly, general secretary of Indian Rubber Growers’ Association and director of National Agricultural Co-operative Marketing Federation (Nafed), said around 30,000 growers are members of various cooperatives that are actively participating in futures trade. Besides these cooperatives, their apex body Nafed was also actively into rubber futures trade, Monipilly said.
According to George Valy, president of the Indian Rubber Dealers Federation, which has around 9,000 members, there is a difference of opinion among dealers regarding futures trade. The matter is to be discussed threadbare during the annual general meeting of the federation on Saturday. However, he said that during the 28 July meeting convened by FMC (Forward Markets Commission) in Hyderabad, the matter was discussed and the issue of speculation was also raised. But for a minuscule section that wanted ban on rubber futures, there was consensus for continuance of rubber futures trade, Valy said.
However, a few rubber dealers in Kottayam and Kochi have come out openly against futures trade. N. Radhakrishnan, president of the Rubber Merchants Association, said trade has benefited only the speculators. He said only a small section of growers and traders are active and sees no reason for continuing the trade that has not proved beneficial to traders and growers.
Meanwhile, Sajen Peter, chairman of government trade promotion body, Rubber Board, has denied reports that the board has sought a ban on rubber futures trade. He said at no time did the board demand a ban on futures; it only sought a 2% cap daily on fluctuation.
Speculation had made growers hold on to stocks, even jeopardizing the board’s plans to give exports a major boost, Peter added.