Base Metals Contracts – Price Risk Management and Delivery Solutions

Introduction To Base Metals

• Also known as Non-Ferrous complex.

• Includes COPPER, ALUMINIUM, LEAD, NICKEL & ZINC.

• Extensive industrial applications and usage.

• Availability is region specific while the usage is worldwide. Hence, price discovery is global.

• Recycling a very important constituent

Factors Influencing The Market
 Economic events, such as,
– industrial growth, recession, and inflation, affect metal prices.

 Commodity-specific events, such as

– the construction of new production facilities,
– new uses or the discontinuance of historical uses,
– unexpected mine or plant closures (natural disaster, supply disruption, accident, strike, and so
forth), affect metal prices.

 Trade policies set by the government.

 International prices & INR & USD exchange rates.

 Geo Political events.

• For Eg- US China Trade War, etc.
HEDGING
Market Constituents – Value Chain
MINER

Price Taker -
RECYCLER Market Price REFINER

1) Need for efficient price discovery

2) A platform for hedging
3) Scope for delivery of last resort
Fixed Margins –
Price Taker PRODUCT
Purchase Price + Cost
Market Price –Cost MANUFACTURER

Price Taker
Fixed Sale Price
Volatility Risk (Aluminium)
Average Daily Volatility - MCX Aluminium Prices MCX Aluminium
ANNUALIZED
F.Y.
6% VOLATILITY

2016-17 14.95%
2%
2017-18 15.89%
2018-19 27.08%
-2%
2019-20 16.17%
2020-21 18.21%
-6%
2021-22 27.76%

-10% 2022-23* 28.71%

4/1/2015 4/1/2016 4/1/2017 4/1/2018 4/1/2019 4/1/2020 4/1/2021 4/1/2022
*Till December 2022

• Aluminium is witnessing annualized volatility of 28.71% in FY 22-23, which means a firm in Aluminium business
with annual turnover of INR 100 Crores is exposed to price risk of INR 28.71 Crores in FY 2022-23.
• Does one have such profit margins to contain 28.71% fluctuations in the raw material costing ?
Volatility Risk (Copper)

Average Daily Volatility - MCX Copper Prices MCX Copper

ANNUALIZED
20% F.Y.
VOLATILITY
16%
2016-17 19.88%
12%
2017-18 17.22%
8%
2018-19 18.62%
4%
2019-20 24.09%
0%
2020-21 29.37%
-4%
2021-22 21.08%
-8%

-12%

-16% 2022-23* 21.58%

-20%
4/1/2015 4/1/2016 4/1/2017 4/1/2018 4/1/2019 4/1/2020 4/1/2021 4/1/2022

*Till December 2022

• Copper is witnessing annualized volatility of 21.58% in FY 22-23, which means a firm in Copper business with
annual turnover of INR 100 Crores is exposed to price risk of INR 21.58 Crores in FY 2022-23.
• Does one have such profit margins to contain 21.58% fluctuations in the raw material costing ?
What Is Risk?

What do we do about the risk?

What is
Commodity
Price-Risk? Do
Hedging
Nothing?
Commodity Price Risk is the
We assume
financial risk on any entity’s symmetrical risk i.e.
financial performance/ profitability what we lose today
we might make up
due to fluctuations in the prices of next time! Manage price risk and
lock raw material
commodities that are out of the prices using futures
control of the entity since they are Profits are going
contracts

primarily driven by external market good, no need for

hedging
forces.
Copper: Hedging Against Domestic Sales
ABC Company imports 10 MT Copper to conduct routine production, finished goods (Copper tubes) is sold in the
physical market. It has put forward following facts to devise hedging strategy to lock raw material prices -
• Purchases 10 MT raw material and finished goods get ready in 4 weeks.
• Finished goods sold at ruling price - Hence, difficult to predict the sales price 4 weeks ahead.
DATE COPPER FUTURES PHYSICAL MARKET
Buy Raw Material from physical
1st January SELL
market @Rs. 650/Kg
31st January BUY Finished goods sold at ruling price

PHYSICAL FUTURES
CASH FLOW NET REALIZED SALE
DATE
ACTION PRICE ACTION PRICE FROM FUTURES VALUE

1st January Buy 650 Sell 651

30th January Sell 643 Buy 644 7 650, i.e. (643+7)

30th January Sell 657 Buy 658 7 650, i.e. (657-7)

Hence, the lock-in price for Copper will be Rs. 650/Kg after Hedging.
Aluminium : Hedging on routine basis
ABC Systems is in joint-venture with XYZ aircraft corporation for providing aerospace structures on weekly basis for
next 4 weeks. For manufacturing the aerospace structures, ABC Systems requires 10 MT of Aluminium as raw material
on weekly basis.
• To buy from the physical market or import weekly 10 MT at the prevailing price
• To buy first lot of 10 MT on 1-July at the prevailing price of Rs 205/Kg. – Hence, no price change for the first lot.
• To buy remaining 40 MT in subsequent weeks in same lot size at ruling prices. Hence, hedges the total of 40 MT
on MCX by buying @ Rs 206/KG, to mitigate price risk.

DATE PHYSICAL MARKET ALUMINIUM FUTURES PROFIT / (LOSS) IN NET PURCHASE

FUTURES PRICE
1-January Buy 10 MT @ 205 Buy 40 MT @ 206 205
8-January Buy 10 MT @ 208 Sell 10 MT @ 209 3 205 (208 - 3)
15-January Buy 10 MT @ 201 Sell 10 MT @ 202 4 205 (201 + 4)
Hence, the lock-in
22-January Buyprice for
10Aluminium
MT @ 210 will be Rs. 135/Kg
Sell 10 after
MT @ Hedging.
211 5 205 (210 - 5)
29-January Buy 10 MT @ 199 Sell 10 MT @ 200 6 205 (199 + 6)

Hence, the lock-in price for Aluminium will be Rs. 205/Kg after Hedging.
Hedging Participants

All those who have or intend to have positions in physical markets are participant hedgers.

• Importers- Importers have the risk of the prices to fall in price while the goods are in transit.

• Exporters - Exporters have the risk of the prices to rise in the raw material price.

• Processors - If the processor is working as a job worker. He has no risk.

• Other participants include Refiners, Stockiest and Fabricators. They will face challenges of price rise
or drop while the work is in progress.
BASE METALS CONTRACTS
Base Metals Segment
• MCX has been successfully running delivery-based futures contracts in Base Metals which include Nickel, Zinc,
Aluminium, Lead and Copper. These contracts got converted into delivery-based settlement mode from March 2019
onwards in a phased manner.
• GST implementation facilitated the delivery-based settlement.
• A glimpse of performance:

AVERAGE TURNOVER (IN CR) AVERAGE VOLUME (IN MT’S) AVERAGE OPEN INTEREST (IN MT’S)

METAL

FY 2020-21 FY 2021-22 FY 2022-23* FY 2020-21 FY 2021-22 FY 2022-23* FY 2020-21 FY 2021-22 FY 2022-23*

ALUMINIUM 176 607 720 11,349 26,800 33,655 4,504 13,879 21,326

COPPER 2,406 2,537 2,112 44,199 34,087 30,689 11,270 11,740 14,446

LEAD 279 218 123 18,394 12,166 6,800 3,417 5,149 4,229

NICKEL 2,245 1,726 1 19,906 11,600 4 2,534 3,061 43

ZINC 1,035 736 863 53,326 28,226 29,352 12,284 9,406 10,734
*Data till December’22
Contract Specifications – Trading Parameters
PARTICULARS ALUMINIUM COPPER ZINC/ZINCMINI NICKEL LEAD

CONTRACT LISTING Contracts are available as per the Contract Launch Calendar

CONTRACT START DAY 1st day of contract launch month. If such day is a holiday then following working day

LAST TRADING DAY Last calendar day of the contract expiry month. If such day is holiday then preceding working day

TRADING UNIT 5 MT 2.5 MT(2500 Kgs) 5 MT/1MT 1.5 MT (1500 Kgs) 5 MT

QUOTATION VALUE 1 Kg

Ex-Warehouse Raipur
Ex - Warehouse Chennai district (excl.
PRICE QUOTE district (excludes only Ex - Warehouse Thane district (excl. only GST)
only GST)
GST)

TICK SIZE 5 Paisa per kg 10 Paisa per kg 5 Paisa per kg

5 MT +/- 10% 1.5 MT +/- 10%

DELIVERY UNIT 5 MT +/- 10% tolerance 2.5MT +/- 10% tolerance 5 MT +/- 15% tolerance
tolerance tolerance

INITIAL MARGIN + ELM Higher of Min. 8% or based on SPAN + min. 1% ELM Higher of Min. 10% or based on SPAN + min. 1% ELM

Higher of 25,000 MT or Higher of 1,000 MT or

CLIENT LEVEL POSITION LIMITS* Higher of 7,000 MT or 5% of market OI Higher of 3,500 MT or 5% of market OI
5% of market OI 5% of market OI

Higher of 2,50,000 MT or Higher of 10,000 MT Higher of 35,000 MT or 20% of market

MEMBER LEVEL POSITION LIMITS* Higher of 70,000 MT or 20% of market OI
20% of market OI or 20% of market OI OI
Delivery Centre(s) at MCX

Commodity Primary Delivery Centre Additional Delivery Centre

1. Thane, Maharashtra
2. Palwal, Haryana (NCR)
Aluminium Raipur, Chhattisgarh 3. Chennai, Tamil Nadu
4. Kolkata, West Bengal
1. Palwal, Haryana (NCR)
Copper Thane, Maharashtra 2. Chennai, Tamil Nadu
3. Kolkata, West Bengal
1. Thane, Maharashtra
Lead Chennai, Tamil Nadu 2. Palwal, Haryana (NCR)
3. Kolkata, West Bengal
1. Chennai, Tamil Nadu
Nickel Thane, Maharashtra 2. Palwal, Haryana (NCR)
3. Kolkata, West Bengal

1. Kolkata, West Bengal

Zinc Thane, Maharashtra 2. Palwal, Haryana (NCR)*
3. Chennai, Tamil Nadu*

*Will be active from March 2023 expiry onwards

MCX PRICE COMPONENTS
&
SPOT POLLING
Components used for price estimates

Sequence Particulars Aluminium Lead Nickel Zinc Copper

A LME Live Prices (US$ / MT) 2,165.00 1,804.00 23,411.00 3,008.00 7,433.00
B Premium (US$ / MT) 150 135 145 140 140
C RBI Ref. Rate 81 81 81 81 81
D = (A+B)*C CIF Price (INR / Kg) 187.52 157.06 1908.04 254.99 613.41
E Basic Customs Duty + Surcharge (%) 8.25% 5.50% - 5.50% 5.50%
F = D*E Customs Duty Value 15.47 8.64 - 14.02 33.74
G=D+F Landed Cost to Indian Port (INR / Kg) 203.0 165.7 1908.0 269.0 647.2
Customs clearing cost / Transportation /
H 1% 1% 1% 1% 1%
Handling etc (Approx.)
I = H*G Clearing & Transportation Costs (INR / Kg) 2.03 1.66 19.08 2.69 6.47
J = G+I Final Landed Cost to Warehouse (INR/Kg) 205.01 167.35 1927.12 271.70 653.62

GST (For deliverable lots only) 18%

Notes :
• All figures are estimated and will change based on the transacting entities. Above table is to illustrate the components to arrive at landed price. It
may not exactly match with screen price or polled spot price
• Kindly back calculate the prevailing premiums basis the polled spot prices. Refer the link - https://www.mcxindia.com/docs/default-
source/market-data/spot-price/base-metals-historical-spot-prices.pdf?sfvrsn=7362a690_2
For Daily Reference Price & FSP: Price Polling

• Reference spot prices is for better pricing decisions by participants and used for determining delivery price

SPOT PRICE POLLING AT MCXCCL

• Spot market prices are polled once a day & single reference price* disseminated to the market at ~ 4.30pm on TWS and
MCX & MCXCCL website. (*arrived based on Trim-Mean method)
• Final Settlement Price (FSP) of all the deliverable contracts is an average of 3 days evening spot price
• FSP of respective month contract will be used for billing and GST calculation
• On expiry day, trading will be available only till 5:00 p.m. for expiring contract.

• Spot Prices available at - Your opinion

matters for
• https://www.mcxindia.com/market-data/spot-market-price &
price, Please
• https://www.mcxccl.com/spot/spot-market-price enroll for Spot
Price Polling !!
 MCX METALS
DELIVERY SOLUTIONS
Delivery Period

Staggered Delivery Tender period are the last 5 working days of the expiry month illustrated below

JANUARY FEBRUARY
Su Mo Tu We Th Fr Sa Su Mo Tu We Th Fr Sa
1 2 3 4 5 6 7 1 2 3 4
8 9 10 11 12 13 14 5 6 7 8 9 10 11
15 16 17 18 19 20 21 12 13 14 15 16 17 18
22 23 24 25 26 27 28 19 20 21 22 23 24 25
29 30 31 26 27 28

MARCH APRIL
Su Mo Tu We Th Fr Sa Su Mo Tu We Th Fr Sa
1
1 2 3 4
2 3 4 5 6 7 8
5 6 7 8 9 10 11
9 10 11 12 13 14 15
12 13 14 15 16 17 18 16 17 18 19 20 21 22
19 20 21 22 23 24 25 23 24 25 26 27 28 29
26 27 28 29 30 31 30

• During the staggered tender delivery period, you should rollover to the next month contract to continue your
position in the base metals futures.
• Link for the Settlement Calendar for the respective month- https://www.mcxindia.com/docs/default-
source/market-operations/delivery/settlement-calendar/settlementschedule.pdf?sfvrsn=2
Settlement Timeline for Staggered Tender Delivery Period

Delivery Mode: ComRIS

Settlement Type: T+1
30 January (E-1) 31 January (E)
25 January(E-3) 27 January (E-2)
Delivery Intention – 5:00 pm 24 January (E-4) Monday
Wednesday Thursday Friday
For tender delivery period Tuesday

Delivery pay–in of commodities 24 January 25 January 27 January 30 January 01 February

( T ) / (T+1) at expiry (5:00 pm) (5:00 pm) (5:00 pm) (5:00 pm) (2:00 pm)

Pay-in of funds (T + 1) 25 January 27 January 30 January 31 January 01 February

(2:00 pm) (2:00 pm) (2:00 pm) (2:00 pm) (2:00 pm)
Pay-out of Funds/Delivery of 25 January 27 January 30 January 31 January 01 February
commodities (T + 1) (4:00 pm) (4:00 pm) (4:00 pm) (4:00 pm) (4:00 pm)

Charges for weight differential,

premium/discount, settlement
dues, package, transportation & 31 January 01 February 02 February 03 February 06 February
aging. (Dr/Cr) (T + 4)

Penalty for non-delivery (Dr/Cr)

(T + 4) 31 January 01 February 02 February 03 February 06 February
DELIVERY SETTLEMENT TIMELINE (EXPIRY (E))

E+5
E+2 to E+4
GST paid by
E+1 buyer and
Buyers to
E+1 provide GST GST collected
02:00 pm – details and by seller
Expiry Delivery pay-in of GST details to
Delivery Period commodities and
be shared with
E-4 to E Margin (DP)* - Funds Pay-in for
delivery bought sellers
Fixation of DDR Higher of
Delivery a) 3% + 5 day
Tender Period Allocation at 99% Var of spot 04:00 pm –
Margin (TP)* - Final DDR price volatility or Delivery pay-out
5% incremental of commodities
margin on each b) 25%. and Funds Pay-out
day open for tendered
position delivery

* Sellers are exempt from TP and DP margin, if goods are tendered as ‘Early Pay-In’ with all the documentary evidences

Buyer & Seller

Penal Provision – Seller & Buyer Default

SELLER DEFAULT: Seller’s failure to fulfill the delivery obligation

Penalty - 3% of Settlement Price + Replacement cost

Replacement cost = difference between settlement price and higher of the last spot prices on the commodity pay-out
date and the following day, if the spot price so arrived is higher than Settlement Price, else this component will be
zero.

NORMS FOR APPORTIONMENT OF PENALTY :

• At least 1.75% of Settlement Price deposited in MCXCCL Settlement Guarantee Fund (SGF)
• Up to 0.25% of Settlement Price retained towards administration expenses
• 1% of Settlement Price + replacement cost paid to such aggrieved buyer
• MCXCCL shall also take suitable penal / disciplinary action against any intentional / willful delivery default.

BUYER DEFAULT: NOT permitted

Process For Deposits In Warehouse
MCX designated
Warehouse
Submit KYD & DTD, Packing list containing net
Pre-Staggered
Delivery Tender
Day Event
* Documentation for Deposit -
• CoA of the producer with details like
Brand name, Producer’s name, Batch
No & certificate date
• Copy of Invoice
• For Imported Goods: Certificate of
Origin & Custom clearance documents
Seller deposits Goods in warehouse
preferably atleast 2 days prior to its expected
delivery day
and gross weight & batch no.
Visual inspection along with the
supporting documentation*
On approval, Seller to submit WR & QC for
commodity pay-in with endorsed WR
Seller to raise commercial invoice on
buyer
Buyer to register with the relevant
authorities and provide registration
details for invoicing
Deliveries through
# Goods should have producer’s sticker
reflecting producer name, net weight,
batch no, purity, no. of pieces in bundle &
date of manufacturing
# Alternatively, for Aluminium & Zinc the
material having batch detail of the lot
printed with laser / Stencil and coming
directly from manufacturer’s facility or
directly from Port in case of Import shall
also be accepted
Post-Staggered
Delivery Tender
Day Event
Buyer to lift the goods and
pay storage and loading &
unloading charges
Quality Specification of Metals Traded On MCX

Lead
Lead Ingots with minimum purity of
99.97%.

Copper Nickel
Grade A Copper Cathodes LEAD Primary Nickel Cathodes (Cut or Uncut / Full
Plate) with minimum purity of 99.80%.
Aluminium
Primary Aluminium COPPER TU/DU = 5 MT NICKEL Zinc
Ingots, Sows and T-Bars Primary Special High-
with minimum purity of Grade Zinc with minimum
99.70%. TU/DU = 2.5 MT TU/DU = 1.5 MT purity of 99.995%.

ALUMINIUM Quality ZINC/ZINCMINI

TU/DU = 5 MT Specifications TU/DU = 5 MT /

1 MT
Storage Charges
COMMODITY Zinc, Nickel, Copper Lead Aluminium
PRIMARY
Bhiwandi, Panvel & Uran
DELIVERY Chennai Raipur
CENTER (Maharashtra)

Applicable Storage Charges for the

Deposit Date
respective commodity*
1st to 15th of month of deposit Rs.30/MT/Day
16th -25th of month of deposit Rs.35/MT/Day
26th-30th /31st of month of deposit Rs.40/MT/Day
Subsequent month onwards Rs.35/MT/Day
* 1 day billing Cycle (GST extra at the applicable rate)
HANDLING CHARGES

In case of use of Forklift Only (Rs. Per MT) Rs.175/-

In case of use of Forklift & Hydra (Rs. Per MT) Rs.250/-

Important Points
• 5% incremental margin for last 5 trading days (including expiry day) of the contract on all outstanding positions in
addition to the Initial, Special and/ or any other additional margin, if any.

• Intentions received from the sellers and buyers will be broadcasted on TWS by the MCX/MCXCCL by 5.30
p.m. on the respective tender days.

• Sellers are exempted from payment of all types of margins, if goods are tendered as early pay-in with all the
documentary evidences. However, MCXCCL shall continue to collect mark to market margins from Sellers.

• On each Tender day, intentions received during the day will be allocated to buyers having open long position as per
random allocation methodology.

• 100% Pay-in on the settlement day shall be seperate from the margin paid earlier.

• Delivery Allocation Rate

Settlement/Closing price on the respective tender days except on the expiry date.
On expiry date, the delivery order rate shall be the Due Date rate (DDR) and not the closing price.

• Link for the Settlement Calendar for the respective month- https://www.mcxindia.com/docs/default-
source/market-operations/delivery/settlement-calendar/settlementschedule.pdf?sfvrsn=2
 Base Metals Deliveries Via MCXCCL
Month-wise Total
Commodity Aluminium Lead Zinc Copper Nickel
Delivery
Dec-21 3440 875 830 657.5 498 6300.5
Jan-22 3305 1180 495 1712.5 283.5 6976
Feb-22 2235 1375 615 1825 270 6320
Mar-22 4920 2725 335 1165 157.5 9302.5
Apr-22 4795 1335 230 860 99 7319
May-22 2830 1040 395 475 21 4761
June-22 2800 655 400 525 3 4383
July-22 2635 740 1750 2967.5 0 8092.5
August-22 2140 590 1150 3812.5 7.5 7700
September-22 1900 75 715 2380 0 5130
October-22 2855 650 855 1942.5 0 6302.5
November-22 2090 410 1495 1895 1.5 5891.5
December-22 2695 450 1655 2607.5 0 7407.5
( figures in MTs )
Commodity-wise
38,640 12,100 10,980 22,825 1,341 85,886
Total
Total Base Metals Deliveries Via MCXCCL March 2019 – December 2022 = 2,73,368.00 MTs
Stocks in MCXCCL Accredited Warehouses

ALUMINIUM COPPER LEAD NICKEL ZINC

14000

12000

10000

8000
Stocks

6000

4000

2000

0
31-Dec-22 30-Nov-22 31-Oct-22 30-Sep-22 30-Aug-22 29-Jul-22 30-Jun-22 31-May-22 30-Apr-22 31-Mar-22 28-Feb-22 31-Jan-22 31-Dec-21

Stocks in
MAWs 31-Dec-22 30-Nov-22 30-Sep-22 30-Aug-22 29-July-22 30-June-22 31-May-22 30-Apr-22 31-Mar-22 28-Feb-22 31-Jan-22 31-Dec-21
(in MTs)

ALUMINIUM 3037 3710 3667 4127 3700 3708 6273 5541 6790 2496 4563 5509
COPPER 2428 3764 4207 4252 3700 1800 1342 1583 1830 1880 1893 2
LEAD 413 413 63 183 869 676 1272 2447 3746 2130 1578 1552
NICKEL 78 98 42 43 0 13 75 279 406 499 709 0
ZINC 2447 3037 1018 1184 2276 225 599 939 500 921 734 1056
Important Links

• SPOT MARKET PRICES

https://www.mcxindia.com/market-data/spot-market-price & https://www.mcxccl.com/spot/spot-
market-price

• WAREHOUSING CHARGES
https://www.mcxccl.com/warehousing-logistics/Overview

• WAREHOUSING & INVENTORY DETAILS

https://www.mcxccl.com/warehousing-logistics/stock-position

• MCX & LME – REGISTERED BRAND DETAILS

https://www.mcxccl.com/warehousing-logistics/mcx-lme-approved-brands
DO’S & DON’TS - COMMODITY DERIVATIVE MARKET
DO’s
• Trade only through Registered Members of the
Exchange.
• Visit Exchange web site for Members Details to
check if the member is registered with Exchange
• Fill standard 'Know Your Client’ (KYC) form before
you commence trading
• Update your mobile number and/or email id with
your broker
• Insist with your Broker to upload your mobile
number and/or email-id in the Exchange UCC
database.
• Insist on getting a Unique Client Code (UCC) and
ensure all your trades are done in UCC
• Insist on reading the standard 'Risk Disclosure
Document (RDD)’ & ‘Rights & Obligation of
Investor’
DON’TS
• Do not be influenced by indicative returns or
promises made
• Do not get carried away by luring advertisements,
rumors, hot tips
• Do not make payments in cash/take any cash
towards margins and settlement
• Do not sign blank DPs while furnishing securities
deposits
• Do not pay brokerage in excess of the rates
prescribed by the Exchange
 THANK YOU

Multi Commodity Exchange of India Ltd.

Exchange Square, Suren Road, Chakala, Andheri East, Mumbai-400093
Tel. No. 022 67318888 | www.mcxindia.com

The Contents do not constitute professional advice or provision of any kind of services and should not be relied upon as such.
MCX does not make any recommendation and assumes no responsibility towards any investments / trading in commodities or commodity futures done
based on the information given in the website and any such investment / trade are subject to investment / commercial risks for which MCX shall not be responsible.
If financial, investment or any other professional advice is required, please seek advice of competent professionals.