Oil prices spiked in the market due to market manipulation in October-December
With a brief pause during the pandemic-led shutdown, Chattogram's Khatunganj has heated up again riding on slip trading – a share market-like mechanism with a profit-making orientation.
Though the arrangement operates in a grey area and creates obscure market hypes, the illicit profiting tendency results in skyrocketing prices of commodities.
Traders in Khatunganj – one of the largest wholesale commodity hubs in the country – said slip trading is now fueling edible oil prices.
The illicit trading involves a delivery order (DO) or sales order (SO) – a paper issued by importers or manufacturers to wholesalers against the purchased goods – which is legal.
But some unscrupulous wholesalers sell the DO to middlemen for cash – which means ownership of the goods is now split and passes to more hands. These "hands" or middlemen then wait for a surge in the commodity prices, and sell the slips back to the wholesalers or other parties at prices higher than for what they had bought them.
Apart from stiff rising, the international market of a certain item sometimes plunges overnight – which means both the DO holders and slip buyers would share the price falls in terms of losses proportionately to their ownerships.
The process is more or less as noted above. However, there are trading entities, brokerage houses or floating brokers who often engage in the DO and slip trading process to make a quick buck.
Wishing anonymity, Khatunganj brokers said that slip trading against a DO is more like trading stocks in a share market. An importer through the wholesaler leaves the DO in the market and collects the cash while trading enterprises and brokers make their profit by exchanging the DO.
According to edible oil traders in Khatunganj, wholesale soybean oil prices hover around Tk3,000-3,200per maund (approximately 37 kg) at normal times. But the price of the item has spiked by Tk1,000 per maund over the last three months, and is currently at Tk4,250 per maund.
During this time, both palm oil and super palm oil have also seen abnormal surges in prices. The prices are now Tk3,700 and Tk3,800 respectively per maund.
According to Khatunganj traders, slip trading was suspended for a long time due to the Covid-19 pandemic and the need to maintain social distance in the 66-day shutdown. But since last September-October, as people adopted a lax approach to health safety measures, the illegal trade came back – making the commodity market more volatile.
During the shutdown, the traders said wholesalers across the country used to buy consumer items directly from the importers and trading enterprises during this time. There were no sudden ups and downs in the market as there were no middlemen, seasonal businessmen or slip traders.
Prices of consumer items rose slightly during the last Ramadan amid the general holiday, but got stabilized subsequently. Even before Eid-ul-Adha, commodity prices came down to the lowest in the last few years.
In the October-December period, importers and local brands have sold a lot of DOs for oil in the Khatunganj market. After buying the DOs, the wholesalers split the orders into smaller slips and sold them to seasonal businessmen and middlemen.
Places adjacent to trading entities in Chattogram, such as Badsha Market, Sonamia Market, Nabi Market, Bank Asia Market, Jafar Market and Elias Market are widely known for DO and slip trading.
Shamsul Islam, a DO trader in Khatunganj market, said importers, trading enterprises and real businessmen used to dictate the market during the shutdown. But the old issue resurfaced in October, and started raising commodity prices artificially.
Jamal Uddin, organizing secretary of Khatunganj Trade and Industries Association, said, "The market behaves abnormally when there is DO and slip trading. Commodity prices fluctuate hugely on slips instead of market supply and demand."