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FMC refuses to halve price fluctuation limit

FMC refuses to halve price fluctuation limit

Kochi: The Forward Markets Commission, or FMC, the commodities market regulator, has rejected the suggestion of the Rubber Board to halve the price fluctuation limit to 2%.

FMC chairman B.C. Khatua said the commission will be communicating its decision to the board in the next couple of days. The board, which is the government trade promotion body, had asked FMC to reduce the limit to curb volatility in rubber prices in the futures markets. Rubber price is currently Rs97-98 per kg, compared with Rs60 per kg late last year.

The fluctuation limit is a range for price changes over the previous day’s close. If the limit is breached, trading in that commodity is stopped immediately.

FMC had in late 2008 raised the fluctuation limit to 4% after prices fell to as low as Rs60 a kg. The board, at that time, had proposed raising the cap but also suggested that the limit be reduced when prices go up.

Paring the limit to 2% now, when prices are rising, will help check volatility, the board has argued.

Khatua said he had received such a request from the Rubber Board as well as the Automotive Tyre Manufacturers Association, or ATMA. However, FMC has decided that the request cannot be considered since the situation does not warrant any action, he said.

“Moreover, we do not feel that the price fluctuation limit is a strong regulatory instrument. And given the present situation, the price movement is a consequence of the supply position," Khatua said.

He also blamed tyre manufacturers for the present situation saying they did not come into the market when prices had crashed nor had they been active in the futures market.

Rajiv Budhraja, director-general of ATMA, says the price rise is not based on fundamentals but is the handiwork of a handful of speculators in the futures market. Some farmers and dealers, he said, are holding on to their stock expecting a further rice in prices.

The high price for rubber is mainly owing to the supply crunch in the wake of the tapping season coming to a close in the peak of summer. The numbers largely point to a fall in demand.

Meanwhile, fiscal 2010 has started with a carry forward stock of 205,000 tonnes, compared with 108,000 tonnes at the start of last fiscal, according to data from the board. Production for fiscal ’09, too, is estimated to be 5% more at 865,000 tonnes.

Consumption in fiscal ‘09, has grown to 865,000 tonnes from 861,000 tonnes the year before. Exports, too, dropped to 45,430 tonnes from 60,353 tonnes, while imports are 78,030 tonnes, down from 89,000 tonnes last fiscal.

Sajen Peter, chairman of the board, said the request to the commission last week was in the backdrop of prices ruling firm and the need to check volatility. He declined to comment further since he is an election observer in Uttar Pradesh.


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