Ift-commodity Market Integration Project Report

7/31/2019 Ift-commodity Market Integration Project Report

1/14

International CommodityMarket Integrity

International Finance & Trade Project Work

Submitted By: -

Amit Kumar

Chhavi Balana

Priyamwada Trivedi

IFT- Section C

MBA (2011-2013)IBS Hyderabad

2012


2/14

Table of Content

1) Introduction

2)Analysis of Internationally Traded Commodities

a) Coffee

b)Tea

c) Palm Oil

d)Wheat

e)Sugarf) Logs

g) Sawn wood

h)Cotton

i) Rubber

3)Conclusion

4)Bibliography


3/14

Introduction

The purpose of this study is to provide a comprehensive evaluation of Integrity among various

International Commodity Exchange Traded Indexes.

Along with trading opportunities in Equity & Commodity market there are diversification

opportunity together with the advent of deep and highly active commodity Futures markets has

led to considerable growth in commodity index investment over the past decade. Commodity

index products have a variety of forms including managed funds, ETFs, ETNs, and OTC return

swaps. Many are benchmarked to well-diversified and transparent commodity indexes like the

Standard & PoorsGoldman Sachs Commodity Index (S&P-GSCI) and the Dow Jones- UBS

Commodity Index (DJ-UBSCI) and nearly all of them are based on passive, long only, fully

collateralized commodity futures positions.

In order to serve the purpose of this project we would be performing correlation study on 9

different commodities being internationally traded across the globe on basis of Pink Data Sheet

provided by World Bank Data Center for the period starting January 1960 to December 2011.( A

few commodities have been measured on shorter duration of time period due to lack od data).

This would help us in establishing relation between prices of these commodities.


4/14

Analysis of Internationally Traded Commodities

A)Coffee

Coffee (ICO), International Coffee Organization indicator price, other mild Arabicas, average New Yorkand Bremen/Hamburg markets, ex-dock

Coffee (ICO), International Coffee Organization indicator price, Robustas, average New York and LeHavre/Marseilles markets, ex-dock

As shown above both Coffee Robus & Coffee Arabic are quite highly correlated to each other

to a extent of 84%.

COFFEE_ARABIC COFFEE_ROBUS

COFFEE_ARABIC 1

COFFEE_ROBUS 0.842055312 1

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

1960M01

1962M02

1964M03

1966M04

1968M05

1970M06

1972M07

1974M08

1976M09

1978M10

1980M11

1982M12

1985M01

1987M02

1989M03

1991M04

1993M05

1995M06

1997M07

1999M08

2001M09

2003M10

2005M11

2007M12

2010M01

COFFEE_ARABIC

COFFEE_ROBUS


5/14

B)Tea

Tea , average three auctions, arithmetic average of quotations at Kolkata, Colombo andMombasa/Nairobi.

Tea (Colombo auctions), Sri Lankan origin, all tea, arithmetic average of weekly quotes.

Tea (Kolkata auctions), leaf, include excise duty, arithmetic average of weekly quotes.

Tea (Mombasa/Nairobi auctions), African origin, all tea, arithmetic average of weeklyquotes.

As shown above Tea Mombasa is highly correlated to Tea Colombo followed by Kolkata. It is

also important to note that Tea Average also has a higher inclination.

TEA_AVG TEA_COLOMBO TEA_KOLKATA TEA_MOMBASA

TEA_AVG 1

TEA_COLOMBO 0.927261308 1

TEA_KOLKATA 0.896204137 0.700297399 1

TEA_MOMBASA 0.936669305 0.835075133 0.777958166 1

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

1960M01

1962M02

1964M03

1966M04

1968M05

1970M06

1972M07

1974M08

1976M09

1978M10

1980M11

1982M12

1985M01

1987M02

1989M03

1991M04

1993M05

1995M06

1997M07

1999M08

2001M09

2003M10

2005M11

2007M12

2010M01

TEA_AVG

TEA_COLOMBOTEA_KOLKATA

TEA_MOMBASA


6/14

C)Palm Oil

Palm oil (Malaysia), 5% bulk, c.i.f. N.W. EuropePalmkernel Oil (Malaysia), c.I.f.

Rotterdam

As shown above Palm Oil Malaysia is highly correlated to Palm Kernel Oil in terms of prices as

compared for last 16 years..

PALM_OIL PLMKRNL_OIL

PALM_OIL 1

PLMKRNL_OIL 0.92652677 1

0.00

500.00

1000.00

1500.00

2000.00

2500.00

1996M01

1996M09

1997M05

1998M01

1998M09

1999M05

2000M01

2000M09

2001M05

2002M01

2002M09

2003M05

2004M01

2004M09

2005M05

2006M01

2006M09

2007M05

2008M01

2008M09

2009M05

2010M01

2010M09

2011M05


7/14

D)Wheat

Wheat (Canada), no. 1, Western Red Spring (CWRS), in store, St. Lawrence, export price

Wheat (US), no. 1, hard red winter, ordinary protein, export price delivered at the US Gulf port forprompt or 30 days shipment

Wheat (US), no. 2, soft red winter, export price delivered at the US Gulf port for prompt or 30 daysshipment

Wheat considered to be staple food for majority of nations across the globe enjoys higher

correlation in terms of prices across the globe as depicted above.

WHEAT_CANADI WHEAT_US_SRW WHEAT_US_HRW

WHEAT_CANADI 1

WHEAT_US_SRW 0.927867172 1

WHEAT_US_HRW 0.954952379 0.964639673 1

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

1979M01

1980M05

1981M09

1983M01

1984M05

1985M09

1987M01

1988M05

1989M09

1991M01

1992M05

1993M09

1995M01

1996M05

1997M09

1999M01

2000M05

2001M09

2003M01

2004M05

2005M09

2007M01

2008M05

2009M09

2011M01


8/14

E) Sugar

Sugar (EU), European Union negotiated import price for raw unpackaged sugar from African,Caribbean and Pacific (ACP) under Lome Conventions, c.I.f. European ports

Sugar (US), nearby futures contract, c.i.f.

Sugar (world), International Sugar Agreement (ISA) daily price, raw, f.o.b. and stowed at greaterCaribbean ports

Although European Sugar & American Sugar Show significant correlation but Sugar World has

lower correlation. Possible reason for this effect could be sugar subsidiary been provided by

various nations across the globe.

SUGAR_EU SUGAR_US SUGAR_WLD

SUGAR_EU 1

SUGAR_US 0.70498015 1

SUGAR_WLD 0.348768281 0.780609247 1

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

1960M01

1963M02

1966M03

1969M04

1972M05

1975M06

1978M07

1981M08

1984M09

1987M10

1990M11

1993M12

1997M01

2000M02

2003M03

2006M04

2009M05

SUGAR_EU

SUGAR_US

SUGAR_WLD


9/14

F) Logs

Logs (West Africa), sapele, high quality (loyal and marchand), 80 centimeter or more, f.o.b. Douala,Cameroon beginning January 1996; previously of unspecified dimension

Logs (Malaysia), meranti, Sarawak, sale price charged by importers, Tokyo beginning February 1993;previously average of Sabah and Sarawak weighted by Japanese import volumes

On Considering the data available for Logs for last 41 years we find significant correlation

among the prices of the logs been traded across various exchanges of the globe.

LOGS_CMR LOGS_MYSLOGS_CMR 1

LOGS_MYS 0.848821301 1

0.00

100.00

200.00

300.00

400.00

500.00

600.00

1970M01

1972M04

1974M07

1976M10

1979M01

1981M04

1983M07

1985M10

1988M01

1990M04

1992M07

1994M10

1997M01

1999M04

2001M07

2003M10

2006M01

2008M04

2010M07

Series1

Series2


10/14

G)Swanwood

Sawnwood (Cameroon), sapele, width 6 inches or more, length 6 feet or more, f.a.s. Cameroonianports

Sawnwood (Malaysia), dark red seraya/meranti, select and better quality, average 7 to 8 inches; lengthaverage 12 to 14 inches; thickness 1 to 2 inch(es); kiln dry, c. & f. UK ports, with 5% agentscommission including premium for products of certified sustainable forest beginning January 2005;previously excluding the premium

Sawn Wood has depicted a greater degree of correlation for the given data of last 17 years.

SAWNWD_CMR SAWNWD_MYS

SAWNWD_CMR 1

SAWNWD_MYS 0.813382791 1

0.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1995M01

1995M12

1996M11

1997M10

1998M09

1999M08

2000M07

2001M06

2002M05

2003M04

2004M03

2005M02

2006M01

2006M12

2007M11

2008M10

2009M09

2010M08

2011M07

Series1

Series2


11/14

H)Cotton

Cotton (Cotton Outlook "CotlookA index"), middling 1-3/32 inch, traded in Far East, C/F beginning2006; previously Northern Europe, c.i.f.

Cotton (US), Memphis/Eastern, middling 1-3/32 inch, Far East , C/F beginning October 2008;previously c.i.f. Northern Europe

Cotton price has shown significantly higher correlation as compared to any other commodity

which is almost 1 in last 6years.

COTTON_A_INDX COTTON_MEMPHCOTTON_A_INDX 1

COTTON_MEMPH 0.995596944 1

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

2006M01

2006M04

2006M07

2006M10

2007M01

2007M04

2007M07

2007M10

2008M01

2008M04

2008M07

2008M10

2009M01

2009M04

2009M07

2009M10

2010M01

2010M04

2010M07

2010M10


12/14

I) Rubber

Rubber (Asia), RSS3 grade, Singapore Commodity Exchange Ltd (SICOM) nearby contract beginning2004; during 2000 to 2003, Singapore RSS1; previously Malaysia RSS1

Rubber (any origin), Ribbed Smoked Sheet (RSS) no. 1, in bales, Rubber Traders Association (RTA),spot, New York

Rubber (Asia), TSR 20, Technically Specified Rubber, SGX/SICOM nearby futures contract

Rubber has also shown a significant correlation with its counterpart traded across the globe.

RUBBER1_US RUBBER1_MYSG RUBBER_TSR20

RUBBER1_US 1

RUBBER1_MYSG 0.998319239 1

RUBBER_TSR20 0.995870615 0.994991747 1

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

1999M01

1999M08

2000M03

2000M10

2001M05

2001M12

2002M07

2003M02

2003M09

2004M04

2004M11

2005M06

2006M01

2006M08

2007M03

2007M10

2008M05

2008M12

2009M07

2010M02

2010M09

2011M04

2011M11


13/14

Conclusion

It would be interesting to note that although these commodities are been traded at various

exchanges across the globe but on an average they are all highly correlated to each other as

depicted in above graphical representation & Data Analysis Chart.

Our suggestions for improving International Commodity Market Integration are as follows: -

a review of the recent history of commodity price movements and the evidence

concerning the factors affecting them in an attempt to dispel some of the uncertainty and

misconceptions concerning the current situation and remedial actions

assessment of the implications of depressed commodity prices and a balanced view ofthe interests of food importing developing countries and commodity exporting

developing countries

a reasoned consideration of the case, if any, for international action to reverse short term

declines in prices and to slow the rate of secular decline

specific recommendations, based on a review of past experiences and current proposals

for effective forms of international action compatible with the current international trade

regulatory framework and including workable and sustainable funding and coordination

mechanisms.


14/14

BIBLIOGRAPHY:

1) World Bank Pink Data Sheet

2) http://www.fao.org/docrep/006/Y4344E/y4344e03.htm(Last accessed on 10th October

2012).

3) http://data.worldbank.org/ (Last accessed on 10th October 2012).

4) http://en.wikipedia.org/wiki/Commodity_market(Last accessed on 10th October 2012).

5) http://www.fao.org/docrep/006/Y4344E/y4344e0a.htm (Last accessed on 10th October2012).

6) www.sciencedirect.com (Last accessed on 10th October 2012).
http://www.fao.org/docrep/006/Y4344E/y4344e03.htmhttp://data.worldbank.org/http://en.wikipedia.org/wiki/Commodity_markethttp://www.fao.org/docrep/006/Y4344E/y4344e0a.htmhttp://www.sciencedirect.com/http://www.sciencedirect.com/http://www.fao.org/docrep/006/Y4344E/y4344e0a.htmhttp://en.wikipedia.org/wiki/Commodity_markethttp://data.worldbank.org/http://www.fao.org/docrep/006/Y4344E/y4344e03.htm

Date post:	04-Apr-2018
Category:	Documents
Upload:	priyamwada-trivedi
View:	219 times
Download:	0 times

Ift-commodity Market Integration Project Report

Documents