Regulator levies 10% cash margin on mentha oil, cardamom contracts

Imposes margins only on the long side move to protect traders from price volatility

The Forward Markets Commission (FMC) has levied 10 per cent special cash margin on two narrow commodities – mentha oil and cardamom – effective on Thursday, to check volatility in these counters. With this revision, the overall margin on all mentha oil and cardamom contracts has shot up to 18.58 per cent and 19.5-20 per cent from 8.58 per cent and 9.5-10 per cent, respectively.

The regulator has imposed margins only on the long side, which means only buyers would require to keep 10 per cent additional cash with exchanges for protection from price volatility. The two minor commodities are active on the Multi Commodity Exchange (MCX) and the National Commodity & Derivatives Exchange (NCDEX). FMC officials had recently denied any possibility of speculative activity in minor commodities, including mentha oil and cardamom.

FMC has also halved additional margins in all kapaas contracts from the existing 10 per cent to five per cent on both long and short sides. It also withdrew the special margin of 10 per cent, including five per cent cash margin on all pepper contracts.
 

PREVENTIVE MEASURES Cardamom and mentha oil prices on the Multi Commodity Exchange
(Rs/kg)	Spot price		Near-month futures
	Cardamom	Mentha oil	Cardamom	Mentha oil
1-Mar-11	1,090.40	1,223.70	1,097.30	1,146.50
1-Mar-12*	766.20	2,167.50	956.80	2,079.00
% chg	-29.73	77.13	-12.80	81.33
* Till 1415 hrs IST                                                 Compiled by BS Research Bureau

Margin is a portion of money deposited with the exchange for the safety of all stakeholders — traders, members and exchanges — from high price volatility. In case of dramatic price fluctuations, margins are increased to cool down prices. Margins are the prerogative of commodity exchanges and the regulator alike.

“The two narrow commodities were very volatile in the last few months. The special cash margin will help curb price volatility,” said Naveen Mathur, associate director, Angel Broking.

Data compiled by the BS Research Bureau shows a dramatic spurt in mentha oil prices. The commodity for delivery in the near-month shot up by 81 per cent to trade at Rs 2,079 a kg on Thursday, compared to Rs 1,146 a kg a year ago. Similarly, it jumped 77.13 per cent to quote at Rs 2,167.5 a kg in the benchmark spot Chandausi market on Thursday, compared to Rs 1,223.7 a kg a year ago.

According to Ajay Kedia, analyst with Kedia Commodity, “Mentha oil is trading firm on the heels of strong stockists’ demand against diminutive arrivals in major mandis. The commodity has gained over 45 per cent this year.”

Strong demand from international markets and the domestic pharmaceutical industry along with waning supplies in major mandis added strong gains in the spot market, which is currently reflecting in futures as well. Arrivals have further plunged between 150-160 drums on Thursday, from 200 drums in major mandis about a week ago.

Mentha production in 2011 was earlier estimated at 42,000 tonnes and later revised downward to 36,000 tonnes in October, against 28,000 tonnes in the previous year. In the last few days, prices of mentha have witnessed sharp rise due to hoarding by local stockists anticipating further price rise on account of limited supplies between March and June. Sowing of crop has commenced and fresh arrivals will begin only in July.

India is the world’s largest producer and exporter of mentha oil, which is widely used as a flavouring agent in food products, including confectionery. Export of mint products, including menthol, menthol crystals and mint oils in the last three years was 17,000-20,000 tonnes, valued between Rs 1,200 crore and Rs 1,700 crore. Besides India, other countries that produce this oil are China, Brazil and the US. There is a growing export demand for mentha oil.

Prices of cardamom, however, fell by 30 per cent in the past year in the spot market to trade on Thursday at Rs 766.2 a kg, down from Rs 1,090.4 a kg a year ago. On MCX, the commodity for near-month delivery plunged 12.8 per cent to Rs 956 a kg from Rs 1,097.3 a kg a year ago.

After hitting a low of Rs 660 a kg about a month ago, cardamom price turned around. On rising export demand, the price is expected to move up further to around Rs 12,000 a kg in a month, said Amit Sajeja, senior research analyst with Kotak Commodity Services.

Meanwhile, both production and export of cardamom are estimated to set a new record this year.