What happens when a commodity contract is due for compulsory delivery?
In commodity trading, certain futures contracts are marked for physical delivery rather than cash settlement upon expiry. If you hold an open position in such a contract past the notice period, you will be obligated to either take delivery (if you’re long) or give delivery (if you’re short) of the actual commodity.
Key points to consider
- Compulsory delivery applies to designated commodity contracts listed on MCX, NSE, and other exchanges
- If held until expiry, you must meet the delivery obligations as per the contract specification
- Insufficient margins or non-compliance can lead to penalties or forceful liquidation by the exchange
Managing compulsory delivery in commodity contracts
- Exit or roll over your position before the delivery notice period if you don’t wish to take or give delivery
- Always verify contract specifications to check whether the commodity allows cash settlement or mandates delivery
- Ensure you have sufficient margins and comply with warehouse/commodity grading requirements where applicable
Always exit compulsory delivery contracts before the delivery period begins unless you’re prepared to fulfill physical delivery obligations.
What if...
| Scenario | Outcome |
|---|
| I hold a buy position till expiry | You must take physical delivery and pay full contract value. |
| I hold a sell position till expiry | You must deliver the commodity in exchange-approved form. |
| I miss the delivery obligation | The exchange may impose penalties or liquidate the position. |
Last updated: 25 Jun 2025
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