Industry peeved over mentha oil futures for causing volatility

UP association might ask government to stop futures trading

The Uttar Pradesh Mentha Industry Association might petition the government to stop futures trading in mentha oil because it has made prices very volatile, an official said on Wednesday.

When mentha oil futures were launched in April, it was trading in the spot market at around Rs 400 a kilogram. Mid-August, the price rose to Rs 570 per 1 kg. Since then it has hovered around Rs 450.

"Fluctuations in mentha oil futures do not justify fundamental market demand-supply positions of that commodity," said Phool Prakash, President, UP Mentha Industry Association.

The volatility "impact spot prices and could hurt the country's exports", he said. Prakash is the immediate past president of Essential Oil Association of India.

Mentha oil is derived by steam distillation of mentha leaves. The process takes place mainly in May-July.

India is among as one of the world's largest producers and exporters of mentha oil. It produces around 17,000-18,000 tonne annually. In the physical market, the oil has a turnover of around Rs 500 crore a year.

Currently, Uttar Pradesh produces 90 per cent of the country's output. This year's countrywide production is seen at 17,000 tonne, down 1,000 tonne from 2004. Prakash says such a fall is not significant.

Prakash also owing to huge speculation in futures, spot prices are so volatile that the manufacturers using it as a raw material are unable to purchase, without facing losses.

A significant portion of mentha oil is used produce of goods for export. Continuous turbulence in spot mentha oil prices makes it difficult to fix export prices of goods where the oil is a raw material.

Prakash estimates 12,000 tonne of the oil are used as inputs for finished good exports such as food, pharmaceutical products and perfumes.

Another 3,500 tonne are used as additives in pan-masala, toothpaste and confectioneries for the local market, he said.

"We would definitely look into the matter if any grievances or distortions are reported as we are very concerned about safeguarding the interest of all members of the market," said Joseph Massey, deputy managing director of Multi Commodity Exchange of India.

However, he noted that no one had spoken to the exchange about "the suspected speculative activities in mentha oil contracts by any organisation".Mentha oil futures are traded on MCX and National Commodity and Derivatives Exchange.

On the MCX, mentha oil futures started trading on April 21. Friday the contract began trading on NCDEX. On MCX, mentha oil futures touched a low of Rs 341.60 per 1 kg on April 14 and a high of Rs 615.50 on August 1.This futures contract is among the top 10 commodity derivatives by volume traded on MCX. On August 5, record volumes of 1.26 million kg was dealt.