Forward Markets Commission may get search and seizure powers

Government working on revised Forward Contract Regulation Bill

The Government is considering empowering commodity market regulator Forward Market Commission, with search and seizure powers, similar to that of SEBI. This will be part of proposed Forward Contract Regulation Act (FCRA) Amendment Bill.

“The proposal related to power for search and seizure is based on the suggestions given by the FMC. It is expected to be part of the Bill which is being redrafted,” a senior Government official said.

The Bill, once approved by the Cabinet, will be introduced in Parliament. The regulator was asked to work on the new Bill after which it sent its suggestions to the Finance Ministry late last week.

Though the Bill was introduced in the previous Lok Sabha, it lapsed as the UPA Government failed to get it passed. The earlier Bill was tabled by the Consumer Affairs Ministry, but now it will be introduced by the Finance Ministry as FMC and Commodity trading come under it.

The revised draft will be silent on regulating spot exchanges. FMC is empowered to regulate futures trading. However, last year, the Government empowered the FMC to supervise settlement of all outstanding one day forward contracts at the National Spot Exchange Ltd (NSEL) and also authorised it to issue any order or direction in the wake of Rs. 5,600-crore scam. Earlier, there were three spot exchanges, NSEL, N Spot and National Multi Commodity Exchange. But, now only N Spot is functional.

The Bill aims to make provision for investigation, enforcement and penalty in case of contravention of the provisions of the Act. It also aims to give fresh powers to FMC such as levying fees and registration of intermediaries. There is also talk about allowing banks and foreign institutional investors in commodity trading. This will help deepen the market. The Bill also has provision for corporatisation and demutualisation of the existing commodities exchanges and setting up of a separate Clearing Corporation.

Beside, empowerment, enactment of the Bill will facilitate introduction of new trading product such as option. Option is a derivative product, like futures, but with some difference. Option gives right, but not the obligation, to buy or sell a specific commodity at a certain price, while future prescribes obligation for the buyer to buy and for seller to sell at a specific future date.

Gold Duty Cut on Card, Wait till 10th July

The government is likely to reduce the import duty on gold and ease restrictions on the gems and jewelry sector in the budget on July 10.

There are indications that the budget can announce a marginal cut in duties to prevent a sudden surge in imports. Gold duty has been raised to 10 per cent from 4 per cent.

The government is also keeping a close eye on the developments in Iraq. A senior finance ministry official said the rise in global crude oil prices following the unrest in Iraq was unlikely to stall the move to cut duties.

“There have been discussions on Iraq and the spike in crude price. The current account deficit (CAD) will be very much in control this fiscal,” the official said, indicating the assessment of the government on the current geopolitical situation and its impact on the economy.

If the unrest in Iraq escalates, it can push up crude oil prices, resulting in higher diesel and fuel rates.

Besides, the high oil import bill will result in dollar outflows and hurt the rupee’s value and the current account deficit (CAD).

According to some estimates, even if the crude prices move up to $120-$125 (the worst-case scenario), CAD will still be below 3 per cent of GDP (gross domestic product) in 2014-15.

CAD had dropped sharply to 1.7 per cent of GDP, or $32.4 billion, in 2013-14, on the back of plunging gold imports.

Analysts said the below-normal monsoon could also weaken demand as much of the yellow metal is purchased by farmers.

“If crop production is lower because of poor monsoon, it will mean less money for farmers to put towards gold purchases. Already the demand is subdued because of high duties. There are hopes that the government may relax those duties, but if the farmer income falls because of a poor harvest, it is possible gold demand may not get much of a bounce,” analysts said.

“Going forward, we expect some widening of trade deficit on the back of gold demand picking up on expectation of a reduction in import duties. However, the extent of trade gap is unlikely to be worrisome as we expect exports to maintain good performance,” Yes Bank chief economist Shubhada Rao said.

Gems and jewelry

The government is also set to ease the 80:20 scheme for the gems and jewellery sector. Under the scheme, nominated agencies are allowed to import gold on the condition that 20 per cent of the inward shipment will be exported.

Gems and jewellery exports account for about 15 per cent of India’s total outbound shipments and exporters have been urging the government to lift the import curbs.

Vipul Shah, chairman of the Gems and Jewellery Export Promotion Council, said, “The 10 per cent duty makes the operations of smuggling economically viable. Also, it is an appropriate time to scrap the 80:20 scheme as the CAD is under control.”

Hedge funds add record 61% to bullish gold bets

The gold price added $3 to end at $1,320 on Friday, making it the third straight week of gains for the precious metal.

Gold's $50 an ounce surge on June 19 startled what had been a sleepy market forcing the smart money to play catch up.

Data released after the close on Friday showed hedge funds and other large gold investors adding a record amount of ounces to their bullish positions.

According to Commodity Futures Trading Commission data bearish or short positions held by so-called managed money fell by nearly 25,000 contracts in the week to June 24.

Speculators added almost the same number bullish or long positions – bets that the price will go up – translating into a 61% net gain of 47,784 contracts or 4.8 million ounces.

This is probably the biggest weekly increase on record or at least since 2007 when the CFTC changed the way data is collected says Ole Hansen, head of commodity strategy at Saxo Bank.

It is also the the first time during the recent rally the increase was not only driven by short covering

Significantly, it is also the the first time during the recent rally the increase was not only driven by short covering but also the addition of new longs, according to the Danish bank.

On a net basis hedge funds now own net longs of over 120,000 lots or 12.1 million ounces, levels last seen in March when gold hit its 2014 high of $1,380.

Managed money is also moving heavily into silver with net longs increasing almost four-fold by 19,623 contracts to 24,757 almost equaling the February high of 25,090 contracts, CFTC data shows.

Precious metals have outperformed other commodities this year with double digit gains for palladium and gold and a strong performance for platinum and silver.

The positive momentum may now be spilling over to other sectors.

A  new survey by investment bank Credit Suisse of 350 investors, including institutions, hedge funds, large corporations and mutual funds show a change in sentiment to commodities:

"When asked 'What do you expect your level of investment to be over the coming 12 months?', 42% of respondents said 'overweight,'" – up sharply from the 19 percent who expressed such optimism in 2013 according to Credit Suisse.

Commodities futures: A mixed report card

Where The World's Biggest Worries Are

With US equity markets hovering near record-er highs, we thought a quick summary of the state of the world's growing geopolitical risks would 'help' rationalize the BTFATH mentality. Here is Deutsche Bank's map of the most potentially destabilizing risks around the world..

Chinese primary aluminum imports climbed 10.23% in May

The data released by the General Administration of Customs indicates that the imports of primary aluminum grew significantly during the month of May this year. On the other hand, the imports of waste aluminum by the country dropped during the month.

The country’s imports of primary aluminum totaled 24,049 tons during the month of May ’14. The monthly output rose 10.23% upon comparison with the output during the same month a year ago. The Chinese welded steel pipe imports had totaled 21,817 tons in May 2013.

As per Customs data, the country’s average import price of primary aluminum averaged at $ 2,026.78 per ton during the month of May.

The cumulative primary aluminum import by the country during the initial five months of the year totaled 212,484 tons, 162.11% higher when compared with the output during the corresponding five months during the previous year. The January-May primary aluminum imports had totaled 81,067 tons during 2013.

China imported 169,583 tons of waste aluminum during the month of May this year, falling by nearly 15% year-on-year. The cumulative imports of waste aluminum during the first five months of the year totaled 929,516 tons, marginally lower by 1.85% when compared with the imports during the corresponding five months in 2013.

China imported 282,969 tons of refined copper in May '14, says Customs data

The latest statistics released by the country’s General Administration of Customs indicates that the Chinese refined copper imports surged higher during the month of May this year. The country imported 282,969 tons of refined copper during the month. The imports during May ’14 were 21.89% higher when compared with the imports during the same month a year ago.

The average import price for refined copper during May ’14 was $ 6,925.74 per ton.

The refined copper imports by the country during the initial five-month period of the year totaled 1.63 million tons, rising significantly over the previous year. The imports jumped 48.84% higher when compared with the imports during the corresponding five-month period during 2013. The Chinese refined copper imports during January to May in 2013 had totaled 1.10 million tons.

Meanwhile, the country’s refined copper exports soared higher during May this year. According to Customs data, the exports of refined copper during the month totaled 28,149 tons, nearly 95% higher when compared with the exports during May last year.

The cumulative refined copper exports during the five-month period of the year totaled 105,204 tons, down 37.58% over the previous year.