Source: The Hindu Businessline

Suresh P Iyengar | Mumbai
March 11, 2019 
The cotton futures contract on commodity exchange MCX is buzzing with activity on the back of volatile prices and rising export demand. The exchange’s move to open three new warehousing centres at Vidarbha, the major cotton belt in Maharashtra, is also paying rich dividends.

The MCX cotton contract had recorded an all-time high average open interest of 3.46 lakh bales this year. The previous high of 3.12 lakh bales was recorded in 2013. Cotton deposited in the exchange-accredited warehouses soared to new high of 1.81 lakh bales and surged by 56 per cent last Tuesday compared to 1.16 lakh bales logged in the same period last year.

Deepak Mehta, Head-Agri and Energy, MCX, said the exchange expects total cotton deposits at the accredited warehouses to touch 2.25 lakh bales by end of this season given the growing interest. The warehouses accredited at Arvi, Hinganghat and Wardha in Vidarbha are witnessing robust delivery of about 30,000 bales of cotton by the local community and ginners, he added.

Export potential

He added that availability of ample cotton at the warehouses can resolve the quality issues being faced by exporters, especially to Bangladesh. Importers from Bangladesh can now take delivery from the exchange platform through Authorised Stock Brokers. Last October, Sebi had allowed foreign entities with physical commodity exposure in India to hedge on the exchange platform as ‘Eligible Foreign Entities’.

Brokers registered with Sebi as ‘Authorised Stock Brokers’ to route trade with Eligible Foreign Entities should have a minimum net- worth of ₹25 crore. Currently, IIFL Wealth Management, Phillip Capital (India) and Motilal Oswal Securities are registered as Authorised Stock Brokers. MCX is also in talks with more broking firms to attract foreign buyers’ interest.

In the past, Bangladesh cotton importers from India have faced many challenges, including quality and quantity issues. In fact, Cotton Association of India is in the process of signing a memorandum of Understanding with Bangladesh’s cotton trade bodies to sort out issues.

Quality check

By insisting on delivery of cotton from MCX-accredited warehouses, importers can ensure that there is no mixing of inferior quality or foreign material as the exchange approved assayers test 5 per cent of the cotton delivered against the industry standard of 2 per cent, said Mehta.

Though importers have to pay a little premium for buying cotton from the exchange platform, they can be rest assured of quality and quantity, he added. (Source: The Hindu Businessline)