Aluminium is one of the metal commodities that has been traded through MCX. MCX stands for the Multi Commodity Exchange. MCX is the exchange where you can trade commodities such as gold, silver, nickel and agricultural products like cotton, coffee, turmeric, etc. just like the BSE exchange where stocks of companies are traded. The trading mechanism done through MCX is pretty transparent, and it is disciplined with the regulatory framework.
What is Aluminium?
Aluminium is the most broadly used non-ferrous metal that is a silvery-white, soft, malleable metal. It's a chemical element in the boron group with symbol Al. It makes up about 8% by weight of the earth's solid surface, and it is the third most abundant metal of all elements in the earth crust after oxygen and silicon. The name is derived from alumen- the Latin name for alum.
Aluminium is not found in the elemental state but only in combined forms as oxides or silicates because of its active correspondence with oxygen. Ancient Romans and Greeks used aluminium salts as dyeing mordants and as astringents for dressing injuries. Aluminium has a unique characteristic of recyclability. It can be 100% recycled without any loss of its natural properties.
The International Resource Panel's Metal Stocks in Society report, says that the global per capita stock of aluminium that is used in cars, buildings and electronics is 80 kg. The aluminium used in developed countries is 350 kg–500 kg per capita rather than in less-developed countries is 35 kg per capita. The per capita stocks are the determinant to calculate their approximate lifespans and is essential for planning recycling. By consumption, aluminium is next to steel.
Trade participants like Producers, processors, exporters, marketers, and SMEs with exposure to aluminium can manage their price risks by hedging. When contingency situation rises, modern risk management techniques and strategies, including market-based risk management financial instruments like 'Aluminium Futures', suggested on the MCX platform can improve efficiencies and combine competitiveness through price risk management. The value of risk management, thus, cannot be exaggerated.
Reasons for trading Aluminium:
China is the foremost producer and consumer of a large percentage of the overall global aluminium market. The fast-growing Chinese economy has necessitated aluminium in recent years for construction, electronics, and transportation, and Chinese companies were the ones who supplied the metal. Therefore, if Chinese economic growth accelerates, then the country’s demand for aluminium will grow. This could create a supply shortage in supply and would increase the prices.
The global economy depends on transportation as one of the ways to support growth. As the global economy expands, the market for aluminium in automobiles and aerospace equipment could grow. Additionally, individuals need cars and trucks to travel to work, which obviously creates the demand for aluminium.
Investing a portion of a portfolio in aluminium along with other metals and other commodities, in general, is a smart way to achieve asset diversification.
Factors Influencing the Market:
Indian rupee and US dollar exchange rates and also the Aluminium prices ruling the international markets influence the market.
Economic factors such as industrial growth, worldwide financial crisis, deflation, recession, and inflation are few of the factors that influence the Aluminium market.
The price changes can happen due to Geopolitical events and commodity-specific circumstances like unexpected mine or plant closures due to natural disaster, supply disruption, accident, strike, and so on.
Trade policies established by Government (implementation or suspension of taxes, penalties, and quotas) might lead to price fluctuations.
China uses over 40% of the annual global supply of aluminium comes from China. Therefore, it is the biggest driver of its price. So, the robust growth in Chinese GDP over the past two decades has driven many industrial commodity prices higher.
Before trading in Aluminium, it's better to know the Contract Specification of Aluminium:
The contract starts at 1st of a contract launch month and the last trading day falls on the last day of the calendar of the contract expiry month. If the contract launch date falls on a holiday, then the following day the contract starts. Whereas, if the contract expiry day falls on a holiday, the previous day the contracts expire.
Trading Period: Mondays through Friday
Trading Session: Monday to Friday: From 9.00 a.m. to 11.30 p.m. / 11.55 p.m*
Trading Unit: 5 MT
Quotation/ Base Value: 1 kg
Price Quote: Ex-Warehouse at Chennai district in Tamil Nadu (excludes only GST).
Maximum Order Size: 150 MT
Tick Size (Minimum Price Movement): 5 Paisa per kg
Daily Price Limits Normally, the base price limit will be 4%. Whenever there is a breach in the base daily price limit, the relaxation will be allowed to 6%.In case, if the 6% base price limit the daily price limit will be relaxed up to 9% after a cooling-off period of 15 minutes.
Extreme Loss Margin: 1%
For individual clients: 25,000 MT or 5% of the market-wide open position, whichever is higher for all Aluminium contracts combined.
Collectively for all clients: 2,50,000 MT or 20% of the market-wide open position, considerably whichever is higher for all Aluminium contracts combined.
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