Mumbai: Futures trading in Polymers, a key ingredient in home and personal care products, is expected to gather momentum with the commodity being launched on the NCDEX, which is expected to act as a price discovery platform.
International prices were hitherto the first indicator for a price direction.
Petrochemical giant Reliance Industries chairman and managing director Mukesh Ambani, who inaugurated the trading, said growth in agriculture and consumer markets will drive demand for polymers in the country.
Reliance Industries enjoys a 80-85% market share in polymer, annual demand for which is 5.5 million tonnes against a capacity of 5 million tonnes.
Besides Reliance, the other key players in the polymer space include GAIL, Haldia Petrochemicals and Finolex.
Though commodity polymers are already traded in MCX, it is yet to achieve price-discovery platform status.
Sources said the futures price of polymer in NCDEX would be based on basic price (manufacturing cost).
“Polymers shall have demand from all industry sectors and in the next three to five years, agriculture will be a big driver along with consumer market,” Ambani said through a video conference.
He also expressed concern on the low per capita consumption of polymer in the country, which is at about 4 kg per individual as against a world average of 25 kg per person.
Polymer is used in range of everyday products, including paints, toothpaste and plastic.
On the topping out of petrochemical cycles, the Reliance chairman said he sees an year of robust demand.
”We see business intact for next one year but we need to see what capacities are coming up,“ Ambani said adding that every year we feel petrochemical cycle topping out but it continues for another year.
He said that there has been voltality in polymer prices because of the oil and the NCDEX platform will enable the company customers to hedge the risks to provide value benefits to the end customers.
“It helps industry become more efficient gives value proposition to customers and sensible returns,” he said.
NCDEX launched the futures contract in three polymer products - polypropylene, linear low density polyethylene and polyvinyl chloride.
The contract among others seeks to address concerns arising out of extreme volatility in prices, inconsistent input price correlation and lack of a suitable derivative instrument to support risk management (hedging) in the plastic industry.
The unit of trading as well as delivery unit for the contract is three metric tons. The delivery centre and additional delivery centre are at NCDEX accredited warehouses at Bhiwandi and Delhi, respectively.
Daily price fluctuation limit for the contract has been set at six per cent. Position limit for members and individual clients has been set at 20,000 MT and 5,000 MTs respectively.
The prevalent spot prices as specified in the futures contracts are derived through a polling process, whereby the exchange randomly calls up 20 market participants from a panel of 40 participants for the spot prices twice a day.
In 2005-06, the domestic market saw a demand supply gap. While the production capacity of polymers was about five million tonnes a year, the demand was around 5.6 MMTA.