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M.R. Subramani

Global market sees no need as prices zoom to 7-year high

Chennai , Sept. 3

While the price of robusta futures has topped seven-year high, the premium that Indian robusta enjoys in the global market has disappeared.

According to trade sources, buyers in London are seeking Indian robustas at a discount of $100 to the current quotes for November delivery on the London International Financial and Futures Exchange (Liffe).

Currently, September contracts on Liffe are quoted at $1,805 a tonne, while November contracts are ruling at $1,538.

Normal happening

When contacted, the Coffee Board Chairman, Mr Krishna Rau, said the disappearance of premium for Indian robustas did not in any way reflect on its quality.

"It is something normal that happens when the market is overheated," he told Business Line.

With new season beginning from October, the current crop will be treated as an old one for delivery in November and, therefore, it would not enjoy an advantage as the new crop, according to trade sources.

"People are seeing at a picture where the Vietnam crop will arrive in the market during November.

Prices may not rule at current level then and it is the reason for the disappearance of premium for robustas," Mr Rau said.

Justification

According to trade sources, buyers abroad have been justifying the disappearance of premium for robustas on the ground that current prices were too high and any premium could be justified only when the rates in the market were low.

"They say Indian robustas justified their premium when the prices were, say, below $1,250 a tonne," the sources said.

Vietnam effect

"When the prices are ruling so high, there is no question of premium since anything sells in the market looking for supply," the sources said.

Indian robustas, at one point of time, had commanded even a premium of $400 a tonne. "But that had declined over the years to less than $100 in the last couple of years, mainly in view of Vietnam emerging as a major robusta grower," the sources said.

Indian arabicas, however, enjoy a premium of one US cents a pound, which is better than what is was a few years ago, when it was offered at a discount of one cents. Even Brazilian coffee is sold at discount, while Columbian coffee enjoys at 12-13 cents premium in the arabica market.

Mr Anil K. Bhandari, former president of the United Planters' Association of Southern India, said Indian robustas currently commanded a good price of over $1,500 a tonne. "Currently, the prices are at a level that we witnessed during the 1998 boom," he said.

Roasters' role

At a time when roasters abroad were looking for stocks to manufacture instant coffee, there was a shortage of robusta in the global market.

"Roasters need to manufacture coffee well in advance before the Western winter sets in and that's why there is a sudden demand," Mr Bhandari said.

There were clear indications of lower stocks in the global market since the beginning of this year.

But roasters preferred to opt for hand-to-mouth existence, leading to the current situation, wherein they were scouring for sourcing their raw material. "Indian robustas are of best quality as per taste standards of the international market," Mr Bhandari said.

According to Mr Bose Mandanna, former vice-chairman of Coffee Board, premiums for coffee disappear normally when the market goes up.

Exports up

Meanwhile, coffee exports this year have increased.

Till August 30, the Coffee Board had issued permits for export of 1.57 lakh tonnes against 1.26 lakh tonnes during the same period a year ago.

Of this, robusta cherry accounts for 73,552 tonnes (58,708 tonnes) and arabica parchment 43,015 tonnes (29,816 tonnes).

Of this, shipments of 1.35 lakh tonnes have been confirmed against 1.24 lakh tonnes during the year-ago period.

On the other hand, farm gate prices for arabica parchment have improved to Rs 3,850-4,050 for a 50-kg bag, while for robusta cherry, they have increased to Rs 1,410-1,480.

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