Mentha oil prices to plunge further amid higher crop forecasts: Choice Broking

Looking ahead, we expect MCX Mentha Oil futures to trade bearish as the peak harvesting is expected to begin in the northern parts of Uttar Pradesh in the coming weeks.

Moneycontrol Contributor

August 02, 2020 / 08:29 IST

Sumeet Bagadia

MCX Mentha oil futures have been sliding since mid of April on reports of higher sowing in Uttar Pradesh this year (2020-21) compared to the previous year (2019-20). Moreover, as the lockdown was at its peak during that period, exports from India also weakened. Domestic market demand had also been limited because of the lockdown. Later in May and June, MCX Mentha oil futures had further declined with positive pre-monsoon reports by Indian Meteorological Department (IMD) and later normal rainfall witnessed in the northern parts of India. 80 percent of the Mentha oil is sown and grown in Uttar Pradesh, while the remaining 20 percent is sown in Haryana, Punjab and Himachal Pradesh.

Looking ahead, we expect MCX Mentha Oil futures to trade bearish as the peak harvesting is expected to begin in the northern parts of Uttar Pradesh in the coming weeks. Earlier in June, harvesting had been delayed due to the lockdown phase and lack of labour activities, however, with the lockdown having to be eased in the rural and semi-urban regions of India, cutting of the Mentha oil crop phase-wise has already begun in the aforementioned states. Moreover, the domestic demand from pharmaceutical companies which is usually higher during the winter season is reported lower at this point of the year. Furthermore, the import demand from major importing countries such as China, the US, Netherlands, Germany, the UK, France, Brazil, Japan and Singapore is relatively lower amid worries of a further rise in COVID-19 cases worldwide.

Though the USD/INR rate is still trading at the lower levels and Mentha oil commodity being export-oriented, the exports from India are still lagging behind and could possibly remain lower in the month ahead. The major export varieties include the Japanese mint oil (derived from Mentha arvensis), peppermint oil (Mentha Piperita), dementholised Japanese mint oil, Spearmint (Mentha spicata), Water mint oil (Mentha Aquatica), horsemint oil (Mentha Sylvestris), and Bergemont oil (Mentha citrate).

The weather conditions also play an important role during the time of harvesting and the incidence of cold waves and heavy rains, are usually harmful during leaf formation. However, that is not the case in the state of Uttar Pradesh in the current period and we are expecting a good crop this year compared with the previous year. So far, the actual production data has not been released yet, however, the domestic traders' sentiment indicates a 10-15 percent incline in production of Mentha Oil this year (2020-21), compared with the previous year (2019-20).