Industry Profile - Capital And Commodity Markets 2s5l2s

INDUSTRY PROFILE: MCX (MULTI COMMODITY EXCHANGE)

‘MULTI COMMODITY EXCHANGE’ of India limited is a new order exchange with a mandate for setting up a nationwide, online multi-commodity market place, offering unlimited growth opportunities to commodities market participants. As a true neutral market, MCX has taken several initiatives for s in a new generation commodities futures market in the process, become the country’s premier exchange. MCX, an independent and a de-mutualized exchange since inception, is all set up to introduce a state of the art, online digital exchange for commodities futures trading in the country and has accordingly initiated several steps to translate this vision into reality. NCDEX (NATIONAL COMMODITIES AND DERIVATIVES EXCHANGE)

NCDEX started working on 15th December, 2003. This exchange provides facilities to their trading and clearing member at different 130 centers for contract. In commodity market the main participants are speculators, hedgers and arbitrageurs. Facilities Provided By NCDEX  NCDEX has developed facility for checking of commodity and also provides a wear house facility

 By collaborating with industrial partners, industrial companies, news agencies, banks and developers of kiosk network NCDEX is able to provide current rates and contracts rate.  To prepare guidelines related to special products of securitization NCDEX works with bank.  To avail farmers from risk of fluctuation in prices NCDEX provides special services for agricultural.  NCDEX is working with tax officer to make clear different types of sales and service taxes.  NCDEX is providing attractive products like “weather derivatives”

Overview

Headquartered in Mumbai, Multi Commodity Exchange of India Ltd (MCX) is a state-of-the-art electronic commodity futures exchange. The demutualised Exchange has permanent recognition from the Government of India to facilitate online trading, and clearing and settlement operations for commodity futures across the country. Having started operations in November 2003, today, MCX holds a market share of over 80%* (87.3% during the nine months ended December 31, 2011 and 82.4% in FY2011) of the Indian commodity futures market, and has more than 2,153 ed operating through over 2,96,896 including CTCL trading terminals spread over 1,572 cities and towns across India. The Exchange was the fifth largest^ commodity exchange, among all the commodity exchanges considered in the Futures Industry Association survey, in of the number of contracts traded for the six months ended June 30, 2011 MCX offers more than 40 commodities across various segments such as bullion, ferrous and non-ferrous metals, energy, and a number of agri-

commodities on its platform. The Exchange introduces standardised commodity futures contracts on its platform. These contracts in futures exchanges provide an anonymous trading environment for ideal price discovery. The Exchange is the world's largest exchange in Silver, the second largest in Gold, Copper and Natural Gas and the third largest in Crude Oil futures, based on the comparison of the trading volumes of our Exchange with those of the leading global commodity futures exchanges in the world, for the calendar year 2010 and the six months ended June 30, 2011. MCX has been certified to three ISO standards including ISO 9001:2008 Quality Management System standard, ISO 14001:2004 Environmental Management System standard and ISO/IEC 27001:2005 Information Security Management System standard. The Exchange’s platform enables anonymous trades, leading to efficient price discovery. Moreover, for globally-traded commodities, MCX’s platform enables domestic participants to trade in Indian currency. The Exchange strives to be at the forefront of developments in the commodities futures industry. MCX was the first exchange in India to initiate evening sessions to synchronise with the trading hours of global exchanges in London, New York and other major international markets. It was the first exchange in India to offer futures trading in steel, crude oil, and almond. In June 2005, MCX launched MCXCOMDEX, India’s first real time composite commodity futures index, which provides our with valuable information regarding market movements in the key commodities, as determined by physical market size in India, which are actively traded on our Exchange. We have introduced several other indices, including MCXAgri (agricultural commodities index), MCXEnergy (energy commodities index) and MCXMetal (metal commodities index). We also have three rain indices, namely RAINDEXMUM (Mumbai), RAINDEXIDR

(Indore), and RAINDEXJAI (Jaipur) which track the progress of monsoon rains in their respective geographic locations. In December 2009, we launched EFP transactions for the first time in India, which enables parties with futures positions to swap their positions in the physical markets and vice versa. MCX has forged strategic alliances with various national and international trade bodies / associations / organisations, which we believe enables us to grow our business and expand our market presence. Among international alliances, we have formed strategic alliances with a number of exchanges such as the London Metal Exchange, the New York Mercantile Exchange, the LIFFE istration and Management (under renewal), the Baltic Exchange Limited, Shanghai Futures Exchange and Taiwan Futures Exchange. Key shareholders Promoted by FTIL, MCX enjoys the confidence of blue chips in the Indian and international financial sectors such as FID Funds (Mauritius) Limited (an of Fidelity International), Euronext N.V. (an of NYSE Euronext) and Merrill Lynch Holdings (Mauritius).

Gold

Gold is the oldest precious metal known to man and for thousands of years it has been valued as a global currency, a commodity, an investment and simply an object of beauty. Major Characteristics •

Gold (Chemical Symbol-Au) is primarily a monetary asset and partly a commodity.

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Gold is the world's oldest international currency.

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Gold is an important element of global monetary reserves.

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With regards to investment value, more than two-thirds of gold's total accumulated holdings is with central banks' reserves, private players, and held in the form of high-karat jewellery. Less than one-third of gold's total accumulated holdings are used as

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“commodity” for jewellery in the western markets and industry. Demand and Supply Scenario • Gold demand in 2010 reached a 10-year high of 3,812.2 tonnes, worth US$150billon, as a result of; o

strong growth in jewellery demand;

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the revival of the Indian market;

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strong momentum in Chinese gold demand and

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a paradigm shift in the official sector, where central banks became net purchasers of gold for the first time in 21 years.

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China was the world's largest gold producer with 340.88 tonnes in 2010, followed by the United States and South Africa.

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In 2010, India was the world's largest gold consumer with an annual demand of 963 tonnes.

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The total supply of gold coming onto the market in 2010 reached 4,108 tonnes, a rise of 2% from 2009 levels.

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Global Scenario London is the world’s biggest clearing house.

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Mumbai is under India's liberalised gold regime.

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New York is the home of gold futures trading.

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Zurich is a physical turntable.

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Istanbul, Dubai, Singapore, and Hong Kong are doorways to important consuming regions.

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Tokyo, where TOCOM sets the mood of Japan.

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Indian Scenario India is the largest market for gold jewellery in the world. 2010 was a record year for Indian jewellery demand; at 745.7 tonnes, annual demand was 13% above the previous peak in 1998. In local currency , Indian jewellery demand more than doubled in 2010.

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A 20% rise in the rupee price of gold combined with a 69% rise in the volume of demand, pushed up the value of gold demand by 101% to 1,342 billion. This compares with 2009 demand of 669 billon.

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The rising price of gold, particularly in the latter half of 2010, created a 'virtuous circle' of higher price expectations among Indian consumers, which fuelled purchases, thereby further driving up local prices.

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Factors Influencing the Market Above ground supply of gold from central bank's sale, reclaimed scrap, and official gold loans.

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Hedging interest of producers/miners.

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World macroeconomic factors such as the US Dollar and interest rate, and economic events.

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Commodity-specific events such as the construction of new production facilities or processes, unexpected mine or plant closures, or industry restructuring, all affect metal prices.

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In India, gold demand is also determined to a large extent by its price level and volatility. Measurement Weight Conversion Table To convert from Troy ounces Million ounces Grams Kilograms Tonnes

To Grams Tonnes Troy ounces Troy ounces Troy ounces

Multiply by 31.1035 31.1035 0.0321507 32.1507 32,150.70

Kilograms Kilograms Kilograms Troy ounces Troy ounces Troy ounces Avoirdupois ounces Short tonne

Tolas Taels Bahts Grains Avoirdupois ounces Penny weights Troy ounces Metric tonne

85.755 26.7172 68.41 480.00 1.09714 20.00 0.911458 0.9072

Purity Gold purity is measured in of karat and fineness: Karat: pure gold is defined as 24 karat Fineness: parts per thousand Thus, 18 karat = 18/24 of 1,000 parts = 750 fineness

Silver

Major Characteristics •

Silver (Chemical Symbol-Ag) is a brilliant grey-white metal that is soft and malleable.

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Silver has unique properties such as its strength, malleability, ductility, electrical and thermal conductivity, sensitivity, high reflectance of light, and reactivity.

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The main source of silver is in lead ore, although it can also be found associated with copper, zinc and gold and produced as a by-product of base metal mining activities.

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Secondary silver sources include coin melt, scrap recovery, and dishoarding from countries where export is restricted. Secondary sources are price sensitive.

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Silver is unique amongst metals due to the fact that it can be

classified as both a precious metal and an industrial metal. •

Today, silver is sought as a valuable and practical industrial commodity and as an investment.

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Silver is an important element of global monetary reserves.

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It is an effective portfolio diversifier.

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Demand and Supply Scenario Silverware achieved an increase of 4.6%, owing to stock-related gains in India.

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Demand for coins and medals surged yet higher from 2008, rising by 20.7% to reach a new record high of 78.7 Moz (2,447 t) in 2009 on the back of strong investment demand.

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In 2009, implied net investment soared to 136.9 Moz (4,258 t), buoyed by safe haven concerns, which led to strong inflows into both ETFs and physical investment.

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Scrap supply continued to decrease in 2009 by almost 6% to 165.7 Moz, despite a strong recovery in prices over the year.

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Most notable increases were seen in Bolivia and Argentina (both +6.8 Moz) with by largest single decline coming from Australia (-9.4 Moz).

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Net government sales fell by just over one half to 13.7 Moz (426t) in 2009, primarily driven by lowest stock sales from Russia, coupled with the continued absence of any disposal from China and India.

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Global Scenario Silver is predominantly traded on the London Bullion Market Association (LBMA) and COMEX in New York.

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LBMA, as the global hub of over-the-counter (OTC) trading in silver, is its main physical market. Comex is a futures and options exchange, where most fund activity is focused.

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Silver is invariably quoted in the US dollars per troy ounce.

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Indian Scenario India's silver demand averages 2500 tonnes per year, whereas the country's production was around 206.95 tonnes in 2010.

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Nearly 60% of India's silver demand comes from farmers and rural India, who store their savings in silver bangles and coins.

Factors Influencing the Market • Economic events such as national industrial growth, global financial crisis, recession, and inflation affect metal prices. •

Commodity-specific events such as the construction of new production facilities or processes, unexpected mine or plant closures, or industry restructuring, all affect metal prices.

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Governments set trade policy (implementation or suspension of taxes, penalties, and quotas) that affect supply by regulating (restricting or encouraging) material flow.

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Geopolitical events involving governments or economic paradigms and armed conflict can cause major changes.

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A faster growth in demand against supply often leads to a drop in stocks with the government and investors.

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Silver demand is underpinned by the demand from jewellery and silverware, industrial applications, and overall industrial growth.

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In India, the real industrial demand occupies a small share in the total industrial demand of silver. This is in sharp contrast to most developed economies.

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In India, silver demand is also determined to a large extent by its price level and volatility. Measurement Weight Conversion Table To convert from To 1 Moz Metric tons 1 Ton Troy ounces

Multiply by 31.103 32,511

1 Ton

Grams

1,000,000

Platinum

Platinum is the rarest of all precious metals. It has several unique chemical and physical properties that make it essential in a wide range of industrial and environmental applications. Platinum is also considered as one of the finest of all jewellery metals. Major Characteristics •

Platinum as a pure metal is silvery-white in appearance, lustrous, ductile, and malleable. It is widely used in several industrial applications as it possesses high resistance to chemical attack, excellent hightemperature characteristics, and stable electrical properties.

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Platinum is corrosion resistant and is more precious than gold. Platinum's wear- and tarnish-resistance characteristics are well suited for making fine jewelry.

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Platinum is traded as a commodity with prices determined by market forces. It is also a widely sought after investment avenue in recent years. However, it is not widely treated as a monetary base like gold

Global Supply Demand Scenario • The supply of platinum is met by mine production, auto catalyst refining and jewellery refining with their respective contribution estimated to be 6.15 million ounces, 1 million ounce and 0.9 million ounce in 2008. •

The annual production of platinum has averaged around 6.2 million ounces (193 tonnes) in the previous three years from 2006 with more than 90% of the production coming from South Africa (76%) and Russia. The

other producers are United States of America, Canada and Zimbabwe. •

The production of platinum is highly dependent on South Africa's production with 2009 output from South Africa, Russia, USA and Zimbabwe estimated to be 4.7 million ouces, 0.74, 0.25 and 0.33 million ounces respectively.

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The platinum mining industry is very capital intensive and it is reported that approximately 10 tonnes of raw ore has to be mined to produce just one pure ounce of platinum.

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Unlike other precious metals like gold and silver, there are no large above-ground platinum stockpiles to protect against significant supply disruptions. Some estimates predict that existing above ground reserves would last only for a year, if platinum mining was suddenly stopped.

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The demand for platinum mainly comes from auto catalyst, jewellery, other industrial application and investment. The other industries uses platinum are electronics, glass and petroleum industry.

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The total global demand for this rare metal is reported to be around 7.79 million ounces in 2008, with consumption by auto catalyst (used in automobiles), jewellery, investment and other industrial applications estimated to be around 3.8, 1.6, 0.45 and 1.9 million ounces respectively.

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North America, Europe, China and Japan are the most important economies ing for majority of the global platinum consumption. World Gold Markets The London Platinum and Palladium Market (LPPM), which provides the industry benchmark price ‘London fix’ Derivative exchanges at New York – CME (COMEX), TOCOM (Japan), MCX (Mumbai)

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Indian Platinum Market India's appetite for platinum has been steadily increasing in recent years on of the country's economic progress leading to rising industrial demand and increasing preference for platinum jewellery in

urban areas. •

India's consumption of platinum in 2008-09 is estimated to be around 932 kgs, which is expected to rise to around 1200 kgs in 2009-10.

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The approximate consumption by various sectors in India is estimated to be automobile (55%), petrochemicals (25%), jewellery (15%) and electronics & dental (5%).

Market Moving Factors •

Indian platinum prices are highly correlated with international prices. However, the fluctuations in the INR-US Dollar impact domestic platinum prices and have to be closely followed.

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The global prices are driven by a host of factors with macroeconomic factors like strength of the global economy, currency movements, interest rates, rising importance of emerging markets being major influencing factors.

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Economic situation in major consuming countries like USA, Europe, Japan and China influence consumption on to its high demand from industrial sectors, especially automobiles.

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Platinum production is highly skewed with just four mines and two countries producing almost 90% of the total annual production. Prices are influenced profoundly by production disruptions, policies taken in producing countries. The influence of this factor is enhanced by the absence of any significant global stocks of platinum in the world, unlike that of gold and silver. Additionally, platinum mining is a very capital intensive industry, which discourages entry of new players.

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Any change in global stocks, of which a major portion is present in Russia do influence prices.

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The price movement in other precious metals, especially gold is a major influencing factor.

Measurement Weight Conversion Table To Convert from Troy Ounce Troy Ounce Million Troy Ounce Kilograms Tonnes

To Grams Kilograms Tonnes Troy Ounce Troy Ounce

Multiply by 31.1035 0.0311035 31.1035 32.1507 32150.7