Barely three weeks after withdrawing special margins in all running pepper contracts, the Forward Markets Commission (FMC) levied 10 per cent additional margin on both the long side and short side in the commodity, to reduce volatility.
According a circular posted on the National Commodities & Derivatives Exchange (NCDEX) website, the additional margin will be applicable on all live contracts from Friday. This means both buyers and sellers will have to pay an additional 10 per cent of margin with their respective exchanges, for which they would not get any trading exposure.
The development assumes significance as frequent changes in regulatory norms discourages traders from active participation. A healthy trade environment requires sustained policy without frequent tweaking.
“The objective of this additional margin levy is to reduce volatility in pepper price, where speculators fear price manipulation in the commodity,” said a trader.
Pepper for near-month delivery on NCDEX has shot up 41 per cent since February 16, to trade currently at Rs 43,025 a quintal from Rs 30,555 a quintal.
The commodity markets regulator had in February withdrawn special margins of 10 per cent (including five per cent of cash margins) on all long side contracts effective February 21.
With this increase, total margins on all long side pepper contracts work out to 20.43 per cent from the existing 10.43 per cent (8.43 per cent initial and two per cent of exposure free).
The regulator has also levied a 15 per cent special margin on mentha oil on all buy side contracts from the existing 19.64 per cent to 34.64 per cent now. Earlier, only a 10 per cent special margin was applicable. With the current increase, the overall special margin has surged to 25 per cent.
Prices of mentha oil have jumped 55 per cent since February 16, to trade currently at Rs 2,467 a kg from Rs 1,595 a kg.
According to Ajay Kedia of Kedia Commodity, a Mumbai-based research firm, mentha oil may cross the benchmark Rs 2,750 a kg level soon, on the heels of strong stockist demand against diminutive arrivals in major mandis. The commodity has gained 46.4 per cent so far this year from Rs 1,322 a kg on January 1.
Mentha oil rates shot up as rising export demand amidst lower stocks kept trends positive. Even imposition of a higher margin failed to have any significant corrections in rates.
While the market is in an overbought condition, the overall fundamentals remain highly bullish due to good export and domestic demand, amidst low stocks and lower production.
Sentiments remain firm, though a fall in the dollar against the rupee could affect the export rates adversely, said Kedia.
Good demand from international markets and domestic pharmaceutical industries was noted. Low production and lower stock levels supported the market sentiments, too.
Traders expect an overall bullish trend to prevail in the markets, as arrivals in the mandis remain moderately low. The total arrivals of mentha oil stood steady at 200-250 drums (each 180 kg).