Lured by record high off-season realisation early this financial year, farmers and stockists have reduced the supply of mentha oil by 50 per cent in wholesale spot markets, though this is the harvesting season.
Against an estimated 1,800 drums (180 kg each) of daily supply around the same time last year, farmers and stockists have restricted their sale in the physical market to around 800 drums.
This has created a shortage of mentha oil, which is used for manufacturing gutkha, confectioneries, cosmetics and pharmaceutical products. The price has surged by 13.4 per cent in the past six days in the benchmark Chandausi, Uttar Pradesh, mandi. Today’s trade of mentha oil was at Rs 1,322 a kg as compared to Rs 1,166 a kg on May 30. Uttar Pradesh is the largest producer of mentha oil in India.
“Farmers are holding their stocks amid anticipation of record high prices again this year. During the lean season, i.e., around early April, mentha oil price set a record at Rs 1,750 a kg,” said Ajay Kedia, managing director of Kedia Commodities.
However, the surge in prices may not be to the extent farmers and traders anticipate, countered an analyst from a leading commodity broking firm.
According to the analyst, output this season was estimated to rise 42 per cent to 50,000 tonnes this year from 35,000 tonnes last year.
Mentha oil, a derivative of a medicinal plant, is grown in January–February for harvesting in June. A sudden spurt in spot prices is unusual for a commodity during the harvesting season. But the lack of carryover stock from the last season, coupled with stockists’ need-based release, has created an artificial shortage of the oil in the physical market. Consequently, demand is expected to pick up in the coming days, said Girish Kumar, an Uttar Pradesh-based trader.
In early April, the demand waned as the government of Bihar banned production and sale of gutkha in the state for a year. Export demand also remained lower, due to the ongoing economic crisis in the European Union. Mentha oil is mostly exported to Europe.
The upward price movement in mentha oil is likely to get support from the higher cost of production. According to Kumar, the production cost of mentha oil from mentha leaves has gone up to Rs 75,000 per drum this year, from Rs 45,000-50,000 last year, due to rise in cost of labour and crushing. Still, manufacturers are making huge profits, said Kedia.
Now, renewed buying interest has emerged in the commodity from domestic users. Amid expectations of higher realisation, farmers brought an additional area under mentha this year, resulting in a near-20 per cent increase in sowing to 210,00 hectares this season, compared to 175,000 hectares last year.
“The price shot up last year on rising consumer demand, especially from industries like confectionery and cosmetics. Since mentha oil has no substitutes, user industries continued to buy at the market price,” Kumar said.
On June 2, total stock of mentha oil at MCX-monitored warehouses at Chandausi was 53,961 kg, of which 42,455 kg was physical stock and the demat stock was 11,505 kg. At Barabanki, the total stock was 229,690 kg, of which physical stock accounted for 209,177 kg and demat stock was 20,513 kg.