The Forward Markets Commission (FMC) has directed commodity exchanges to increase margins on mentha oil futures from March 23.
“Mentha oil prices have been increasing sharply since the last two weeks mostly on speculation and not much on fundamentals. Therefore, both on the buying and selling side (long and short), margins have been increased with a special margin on long-side for March and April expiry contracts,” said an official close to development.
Since March 1, mentha oil futures have shot up from Rs 1,135 a kg to Rs 1,314 a kg. Similarly for the April contract, prices have gone up from Rs 1,070 per kg to Rs1,127 per kg. However, since yesterday, prices fell to Rs 1,284 per kg and 1,079 per kg for the March and April contracts respectively. March contract and April contract of mentha oil futures expire on March 31 and April 29.
“As against the usual margin of five per cent paid in cash for both long and short positions in the contract, an additional margin of 10 per cent has been imposed on both positions. In addition to this, a special margin of 20 per cent has been directed for only long positions,” said an official. In effect, the margin for long position is 30 per cent (inclusive of five per cent paid in cash) and 10 per cent for short positions (inclusive of five per cent paid in cash).
Traders said the sudden volatility in mentha contracts because the United States had earlier decided to ban mint cigarettes. However, it is now being reported that they have decided to continue the use of mint based/menthol cigarettes. Traders said there no confirmation on this front but speculations are adding to the confusion. India is the largest producer and exporter of menthol and mint oil in the world.
India’s mint belt lies in Uttar Pradesh, Punjab, Himachal Pradesh, Haryana and Bihar. Almost 80 per cent of the crop in India comes from Uttar Pradesh (Rampur, Moradabad, Bareilly, Barabanki and Badaun) and the remaining from the other states.
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At present, major producers of mint oil are India, China, Brazil and the US. The estimated export of mint products from India in 2009- 2010 was 19,000 MT having a value of around Rs 120 crore.
“The price range of Rs 1,200-1,300 for mentha oil has been highest since 2006. In fact, the price, till sometime back, used to be backwardation (future prices below spot prices). Suddenly, the contracts are in contango ( future prices higher than spot) without much increase in productivity. Since March, spot prices ruled in the range of Rs 1,206-1,195 before settling at Rs1195 per kg,” said an official.