With nickel, MCX launches 3rd base metal options on futures

The largest commodity exchange MCX on Monday launched trading on nickel options, making it the third base metal derivatives on its platform.

The exchange already offers base metal options on futures in copper and zinc and option contracts in gold, silver and crude.

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The exchange said nickel options contract will be based on 1,500 kg nickel futures contracts with tick size of 5 paisa and strike interval of Rs 20, making it the most expensive base metal being traded as the single lot will come for Rs 23.25 lakh, adding the nickel options on futures will be devolved into nickel futures underlying.

The new product will suit all participants, be it investors, traders and hedgers the options contract will provide a more cost-effective tool. The options contract will provide a more cost-effective tool for hedgers even as the underlying futures contract has gained good traction.

Entire annual demand of nickel is 35,000-40,000 tonne and is met through imports mostly from South Africa, Canada and Australia, Chittaranjan Rege, the head of base metals at the bourse told PTI on Monday.

Almost 85 per cent of the metal is consumed by stainless steel makers and the rest go into manufacturing of non-ferrous alloys and into highly specialised application in aerospace and military applications.

Despite the high price, Rege is optimistic of making it big unlike copper and zinc which attract negligible trading interest now.

Initially, three nickel options contracts expiring in January, February and March will be available for trading with the underlying futures contracts.

Options contracts on expiry will devolve into the corresponding futures position. Then, if the open position exceeds the permissible limit it has to be reduced within two trading days, he said.

The main highlights for the nickel options are smaller denomination contract given the metal being the costliest and a lot will involve Rs 23.25 lakh at the current price; monthly options contracts; liquid underlying nickel (1500 kg) futures contract; margin protection for finished goods manufacturer and inventory hedging.

Rege said MCX will be adding more warehousing facilities for nickel and other metals. Currently, its delivery centre for nickel is only in Thane and Chennai but will be expanding to Kolkata for the Eastern markets and to Palwel in Haryana for NCR/Northern markets.

The Kolkata warehouse is now being used for zinc and will be include nickel too. Thus nickel will have four delivery centres/warehouses, he added.

For copper, the same is only in Thane now, while for aluminium Raipur is the primary destination and for lead Chennai, Thane and Palwel are available.

Together the exchange has warehousing capacity of 25,000 tonne but aggregate occupancy is only 7,000-8,000 tonne now.

The exchange has cumulatively delivered 1.85 lakh tonne of metals after metal contracts were converted into delivery settlement since March 2019.