InvestorQ : Can you tell me how to trade palm oil contracts in the futures market in India?
Arti Chavan made post

Can you tell me how to trade palm oil contracts in the futures market in India?

swati Bakhda answered.
3 years ago

CPO futures are one of the most liquid contracts on the commodity exchange with sufficient depth and substantial open interest. The monthly contract commences on the 1st of each month and is settled on the last day of the calendar month. The price of CPO is typically quoted in terms of Rs.10/- KG. At the current price of Rs.511/- the average price per KG works out to Rs.51.10. The minimum trading lot size of the CPO contract is 10 MT, which is equivalent to 10,000 KG. At the current market price, the notional value one lot will be nearly Rs.5.11 lakhs. With an initial margin of 5-6% combining the SPAN and the extreme loss margin, the margin payable on one lot will be around Rs.27,000/ per lot.

In case of CPO futures contracts, the tender and delivery period is restricted to 2 days from the date of expiry. Like in case of other commodities, the intention to take delivery must be accompanied by a quality certificate and proof from an accredited warehouse showing the holding of goods of the said quality in the warehouse.

India is a very marginal producer of palm oil but it is the world’s largest consumer. With consumption patterns shifting in India, this share could actually go up in future. This creates a need to manage global risk of prices, since India does not have control over the prices. Factors like what happens in Malaysia and Indonesia determine the price of CPO as well as extraneous factors like crude oil prices. CPO futures offer a good option to hedge the price risk. It is hardly surprising that CPO futures have emerged as a liquid contract, considering its unique economics in the Indian context.