By Arun Kumar
Will India soon lose its esteemed status as the global benchmark price setter for black pepper? If Tocom rubber futures price benchmark is the mover and shaker of Indian rubber prices, a similar turning point is all set to take place in the case of pepper—fondly called the black gold.
The Singapore Mercantile Exchange (SMX) is launching the first ever global black pepper futures contract from this Friday, February 10. The SMX initiative in pepper trading is going to challenge the supremacy of India’s pepper futures contract at the National Commodity and Derivatives Exchange (NCDEX).
NCDEX pepper contract currently is the price setter for global spot prices, especially Vietnam, the largest producer of pepper looks at the Indian pepper futures for price setting. In the last one year, rising demand for the spice commodity from around the world led to a historic spurt in pepper prices. Last month, while NCDEX pepper futures touched nearly Rs 380 per kg, the spot prices of pepper also moved up to around Rs 370.
Since then, pepper prices have come down to trade around Rs 300 these days. But commodity research houses have forecast that pepper prices would trade between Rs 300-Rs 450 in 2012.
SMX decision to launch pepper trading is a smart move as it would greatly attract the Vietnam pepper market. Vietnam dominates the world black pepper market, being the largest producer and exporter of the commodity with 33% & 43% global share respectively, and thus features as the basis delivery centre of the SMX futures contract. The basis grade is origin neutral 550 g/l black pepper, considering Indonesia, Malaysia and India are also major exporters of the commodity.
SMX says it is going to set a new global benchmark for pepper futures trading with the following contract:
**Physically settled Black Pepper futures contract
**Origin neutral 550 g/l grade
**Deliverable Ex- Approved Bonded Warehouse, Vietnam
**Trading hours span entire Asian time zone
According to V Hariharan, CEO of SMX, the SMX global black pepper futures contract has gone through a rigorous industry validation process over the last two years.
“We are confident that this first agri commodity futures contract on the Exchange will be well accepted by the physical trading community. Going forward we expect to offer more such Asia centric products to facilitate price discovery and price risk management during the Asian time zone,” he said.
Pepper traders in India feel that the SMX pepper contract could pose a big threat to the NCDEX pepper contract. “Since Vietnam is the largest producer of pepper in the world, active trading by Vietnamese pepper traders at SMX means that SMX pepper contract will soon emerge as the global benchmark for black pepper prices. This will erode the price setting charm for the Indian pepper contract,” an Indian spice exporter pointed out.
SMX which has been actively conducting market education programmes through its monthly Investor seminars and regular commodities conventions, announced the launch of the pepper futures contract to be traded on an exchange globally, at the Asian Commodities Convention – Agri Chapter, last week.
Presiding over the meeting, Sunny Verghese, CEO, Olam International Ltd said: “The ensuing launch of the first global Black Pepper futures contract on SMX is going to be an important and pioneering milestone for price risk management and will benefit producers, traders and consumers alike.”
“Through a transparent trading mechanism on the exchange platform and a reliable clearing and settlement mechanism facilitated by the clearing corporation, the contract should attract active global participation and act as a global price benchmark over a period of time,” he added.
