Mentha oil futures trading: A positive integration with physical markets
Ahmedabad: A study conducted on futures trading by the Indian Institute of Management Calcutta and National Institute of Science, Technology and Development Studies, New Delhi has concluded that the use of commodity exchanges to source material for industries in the food and pharma sector that use mentha oil has helped to integrate the physical markets with bourses like MCX.
The independent study stated that both domestic industries and exporters use a commodity exchange like MCX to buy mentha in the forms of oil, and convert it to flakes, or the purest form mentha crystals for exports.
“Integration of the mentha oil futures trade with physical trade, especially exporters and manufacturers, is enabled by the existence of liquidity in the exchange and although deliveries are only a very small part of total futures trade in mentha oil, a significant chunk of the physical trade volume indicated that the futures institution has integrated with physical trade,” a study titled “Impact of futures markets of mentha oil on farmers” has stated. Such integration has been made possible by the creation of a highly efficient alternative marketing channelin Mentha Oil value chain, which has been a key impact of the mentha futures market.
It also found that the Government of India generated an estimated Rs 687.50 lakh in Total Revenue to Government accruing from futures trading through broking firms, in 2011-12. The study was conducted jointly by IIM Calcutta and NISTADS, an institute affiliated to the Council of Scientific and Industrial Research (CSIR)
It was found that futures trade in mentha oil brought breakthroughs in the market like price dissemination into the remotest parts of the country where farmers cultivate mentha, giving them the edge through awareness of competitive local prices across commercial centres. “The emergence of a reference price has enabled importers and others involved in international trade of both crystals and processed mentha oil to use the readily available reference to engage in contracting or in negotiations,” the in-depth research study report stated. Most significantly, the study has observed the role of the futures market in catapulting India as world’s largest mentha crystal exporter, displacing the Chinese. From 2004-05, there has been a rise in crystal manufacturing and exports. “Futures platform through trading of the mentha oil contract and development of the delivery system has helped this transition to manufacturing and exports. This, in our findings, stand out as the most significant effect of the futures market on the commodity ecosystem. MCX spot price information is most closely monitored by the commercial town traders in case of mentha”, the study observed.
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