MCX Crude Palm Oil (CPO):
Crude Palm Oil is one of the Agri 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.
Crude Palm Oil is a type of edible vegetable oil obtained from the mesocarp, fruit of the Oil Palm tree (reddish pulp) or Elaeis guineensis. It is also known as dendê oil, from Portuguese. It is high in saturated fats, and it is one of the most produced vegetable oil in the world like soyabean oil.
Together, Malaysia and Indonesia produce over 80% of world production of Crude Palm Oil( CPO), which are mostly intended for export. Crude Palm Oil futures are actively traded on the Bursa Malaysian Derivatives (BMD) and Mumbai Multi-Commodity Exchange or MCX for the product.
Palm oil is reddish naturally because of high beta-carotene content. Sometimes it gets confused with the palm kernel oil or coconut oil which is derived from the kernel of the same fruit or kernel of the coconut palm respectively.
So, the basic difference among the oil lies in the colour and their saturation level. The palm mesocarp oil is 41% saturated, while coconut oil and palm kernel oil are 86% and 81% saturated respectively.
The consumption trend in India is considered not just by increasing overall consumption, but by shifting patterns of consumption as well. Almost the whole quantity of vegetable oil used in India during the early 1970s was groundnut oil (53% of consumption in 1972/73-1974/75), rapeseed oil (25%) and cottonseed oil (9%). Palm oil, sunflower oil and soya bean oil together accounted for less than 4% of the total vegetable oil consumption. But now, imported oils, mostly palm oil and soya bean oil, consumption is increased.
Risk management techniques are crucial for crude palm oil (CPO) stakeholders such as importers, traders, refiners and stockists. Modern techniques and procedures, including market-based risk control financial instruments such as 'CPO Futures', offered on the MCX platform can improve performances and consolidate competitiveness through price risk management.
Reasons for trading MCX CPO:
India is one of the major importers of Crude Palm Oil in the world.
The palm oil imports in India are over 30 % of its annual edible oil requirement and more than 65% of annual edible oil imports, which makes India dependent on palm oil imports.
In 2004, Crude Palm Oil futures contract was begun on the MCX platform and had witnessed significant volatility since its launch.
Food processors can hedge ingredient prices for a product that will be bought at a later date.
Volatility in prices rising due to changing supply-demand scenario compels hedging to cover price risk.
CPO futures are fitting for price risk management needs of the processors, traders, physical participants and end-users.
Crude Palm Oil contract is highly liquid and provides easy entry and exit to a stockholder. Thus the Crude Palm Oil contract provides space for every investor category.
Factors Influencing the Market:
As Indonesia and Malaysia are the primary producer and exporter, adverse weather conditions can affect the prices. Fluctuations in Indonesia and Malaysia's currencies also influence palm prices.
Indonesian and Malaysian government policies related to export tax have an impact on the prices.
Since soya oil competes with palm oil in the global market, the amount of consumption and production of soya oil can influence the palm oil market prices.
The palm oil market is sometimes influenced by Crude oil movement. If there is a significant rise in energy prices that will lead to a demand for alternative fuel such as Biofuel. As vegetable oil is used in the production of Biofuel it would impact the palm oil price.
Domestic oilseed production
Policies, particularly import duties and economic decisions.
Before trading in CPO, it's better to know the Contract Specification of CPO - Crude Palm Oil:
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 9.00 p.m
Trading Unit: 10 MT
Quotation/ Base Value: Rs./10 kg
Price Quote: Ex-Kandla, exclusives of sales tax/GST.
Maximum Order Size: 200 MT
Tick Size (Minimum Price Movement): 10 Paisa per kg
Daily Price Limits shall have two slabs. Initial and Enhanced slab. Once the initial slab limit of 3 % is reached, then after 15 minutes the slab can be increased by the enhanced slab of 1% only in the contract.
Extreme Loss Margin: 1%
For individual clients: 1,00,000 MT
Collectively for all clients: 10,00,000 MT or 15% of the market-wide open position, considerably whichever is higher for all CPO contracts combined.
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