India should strive to become 'Price Giver' & not 'Price Seeker'

By Suresh Nair, Admisi Commodities

China's commodity exchanges such as Dalian Commodity Exchange (DCE) and Shanghai futures Exchanges (SHFE) may be closed to International participants, but their influence on global markets is undeniable. The centre of the commodities world is shifting to Asia, as growth in volume on the commodity bourses in China, the biggest consumer and user of raw materials, has dwarfed that of rival exchanges of the developed world.

Recently , China, one of the world's biggest producer and consumer of bullion, rolled out a new yuan denominated gold pricing fix as it seeks to establish greater influence in international commodities pricing thereby creating benchmarks.

The aim was to establish a gold benchmark that reflects local market flow and reduce gold's price dependency on the dollar. China is the world's largest gold producer and jostles with India for the tag of biggest consumer of gold globally.

Although the impact of China's gold fix will likely be limited now in a closed monetary system, there is a huge potential for opportunities in future when yuan becomes fully convertible. Yuan is an IMF approved reserve currency. Similar attempts are being made to launch China's first crude oil futures contract by Shanghai International Energy Exchange, a subsidiary of Shanghai Futures Exchange, which was intending to allow foreign participants to trade in, subject to approvals by China Securities Regulatory Commission. China seeks to establish its own pricing benchmark for the oil it buys, rivaling existing Brent or WTI , the present global benchmark for crude.

As India opened up to global trade in the last two decades amid an increasingly inter-dependent world, global factors have had strong effect on Indian Commodity prices including commodity exchange prices. Commodity futures traded on Indian Commodity Exchanges, which are international in nature, are impacted by key price changes in overseas futures contract.

India is a major producer and consumer of many commodities, but instead of dictating terms, we follow prices set overseas. We need to be “Price Givers“ and not “Price Seekers“. Why can't we look at establishing an Indian Gold Fix or an Indian Cotton Fix, which can be international benchmarks? We need to take our rightful place in the commodity world!