Pakistan Mercantile Exchange (PMEX) is planning to establish Pakistan Collateral Management Company for providing storage facilities for futures trading of commodities in Pakistan. Faisal Malik, Business head of agricultural products, PMEX here on Monday explained investment opportunities and benefits of agricultural commodities futures trading at the PMEX to brokers and general investors.
In this regard, a seminar was conducted by Pakistan Mercantile Exchange (PMEX) at Islamabad Stock Exchange Limited (ISE) on ”Agricultural commodities trading in Pakistan for the commodity traders and general investors”. This seminar was a part of a series of trainings started earlier with special focus on educating the traders and general public about the new deliverable agricultural commodities introduced by PMEX. Basic purpose of these products is to route the investments through regularised Exchanges which is a proper channel and will help in best price discovery of the agri-commodities in Pakistan and also helps in strengthening the economy.
Explaining the basic concepts, he said that the futures contract is an agreement between two parties entered on the floor of the exchange to buy or sell a commodity at a certain time in the future for a certain price. He said that the futures contracts can be useful when marketing grain or livestock because they can be a temporary substitute for an intended transaction in the cash market that will occur at a later date. In the absence of a proper risk-management tool, banks are reluctant to fund farmers. If they do, the interest rates are very high. The availability of futures markets and hedging facilities reduces the risk perception, and banks are willing to provide easy credit to farmers.
Faisal Malik highlighted that a number numbers of products in pipeline for futures trade on international commodities in gold, silver, crude oil, palm olien and futures on domestic commodities to be available in Rice IRRI-6, sugar, wheat and in financial futures to include Karachi InterBank Offered Rate (KIBOR) futures. Other products in futures pipeline are international cotton futures, currency futures, T-Bill futures, domestic cotton futures, maize futures, cottonseed oilcake futures, copper, steel futures and futures on refined petroleum products.
Business head of agricultural products, PMEX said that the turnover of most of the Agri-commodities in hundred of billion rupees and all these products are trading through ir-regularised channels and the prices are manipulated and controlled by the participants of these ir-regularised channels. The new system introduced by PMEX will help in best price discovery of the Agri-commodities and the delivery based system will ultimately bring the natural buyers to the market and omit the intermediaries from the market and farmers will get the right price of their product.
He also said that the small investors can also get trading rights through a very small investment and can also deliver the raw material to the well-reputed companies. The PMEX will also introduce new products and contracts in the markets to encourage the market participants in commodity trading.
He explained that at present trading of these commodities is routed through middleman and farming community is deprived of their due benefits of their hard work and futures trading of these commodities would help them to get fair price of from sectors using such commodities for their raw materials or exportable products.
He informed the participants that at present for futures trading of commodities in Pakistan the development of warehousing infrastructure was necessary to empowers farmers to deal with the commodity price risk more efficiently. The missing facilities in commodity markets are mainly identified as storage services, inspection and verification, funding linkages, market linkage, procurement, polling of spot prices, collection of weather data, supply chain solutions, price risk management services and commodity research.
It would take time to provide such facilities and PMEX have alternate arrangement and wheat, sugar with sugar mills and rice with rice mills for the time being and when storage facilities to be available in the country physical delivery would become mandatory. The price of commodities at PMEX would be displayed at commodities markets and would help farming community to fetch batter price for the commodities as well as national buyers like food companies to be able to purchase such commodities in required quantities, Faisal Malik stated.
The “Big” challenges faced by the commodities market, he explained as market awareness, documentation of economy, competition with unregulated trading houses/exchanges, he stated. He further informed that a large number of commodity trading houses commonly known as Forex houses are operating across Pakistan. Even a conservative estimate suggests that their trading volumes are much higher than the combined volume of PMEX and Karachi Stock Exchange (KSE).
A large group of people have attended the session and have shown keen interest entrust in commodity trading. Mian Ayyaz Afzal, Managing Director, ISE appreciate the efforts of PMEX in creating awareness among the general public. He emphasised that there is a dire need to promote saving culture in the country and as an agricultural based country our economy needs such exchanges to regularise the trade of Agri-commodities.