Bourses cut margins on mentha oil futures contracts

In a relief to the mentha traders and hedgers, commodity exchanges have brought down margins on mentha oil future contracts effective from April 13, 2011.

“The move was triggered by a considerable fall in mentha oil prices since March 22 when FMC had directed exchanges to raise margins on mentha contracts sharply. Prices were stable at Rs 1,035-1,050 a kg as against high of Rs 1,200-1,300 a kg in February and early March,” said a market source.

According to the directive issued early this week, additional margin has been brought down to five per cent as against 10 per cent for buy (long) and sell (short) positions. Besides, the special margin of 20 per cent imposed only on long positions has been removed for all contracts apart from April contract.

For April contract, special margin has been brought down by five per cent to 15 per cent . Besides, only five per cent of the special margin has to be paid in cash as against 10 per cent earlier.

Traders said the margin for April contract does not bother much because anyway, the exchanges keep imposing additional five per cent margin daily for the last five days of trading contract before it expires.

On March 23, to counter volatile price rise in mentha contract, FMC had raised margins according to which 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 was imposed on both positions. In addition to this, a special margin of 20 per cent was also imposed for only long positions. 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).

Since March 1, mentha oil futures shot up from Rs 1,135 a kg to Rs 1,314 a kg.

“The price range of Rs 1,200-1,300 for mentha oil was highest since 2006. In fact, the price, till sometime back, used to be backwardation (future prices below spot prices). Suddenly, contracts are in contango (future prices higher than spot) without much increase in productivity,” added an official source.

Traders said the sudden volatility in mentha contracts was due to reports that the United States had decided to continue use of mint based/menthol cigarettes as against a total ban earlier. Traders said there was no confirmation on this front but speculations kept adding to the confusion.

Now also the positions is not clear but the steep margins kept prices rangebound. In any case, India is the largest producer and exporter of menthol and mint oil in the world, and thus, whatever global consumption of mentha oil is there, India will be a major player, they added.

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.