Agri Business

Cloves market crashes as supply outstrips demand

G K Nair Kochi | Updated on July 12, 2012 Published on July 12, 2012

BL13_AGRI_CLOVE

The cloves market continued its fall as supply outstripped demand with Colombo cloves sellers offering Rs 525 a kg, while it was Rs 501 a kg in Delhi. There are said to be only sellers, according to the trade.

In the producing countries, the prices reported to “have dropped to $7,500 a tonne which means the landed cost will come to Rs 475 – Rs 500 a kg,” upcountry market sources told Business Line.

If the current trend is any indication, the prices are likely to drop to Rs 350 a kg very soon, they claimed.

Sellers overseas are “waiting for India to buy, but it will not happen as many are holding stocks bought earlier at high prices”, they said.

“In India, there are no buyers of cloves, all are sellers; so, many investors have cargo with them now. Hence, India is unlikely to import cloves for at least 5 months. In fact, big Indian and Indonesian buyers are out of the market,” they said.

Increased availability, of late, has pulled down prices and it has been on a downward trend from late last year. In fact, prices plummeted from $21,000 a tonne to $7,500 a tonne now and one cannot rule out its further fall in the wake of increased arrivals of new crop in Indonesia, upcountry trade sources said.

The Indonesian crop this year is estimated to be at around 90,000 tonnes and the crop is expected to arrive in the markets next month. The prices have now dropped to $7,500 a tonne and that is likely to gradually fall to $6,000 a tonne. The Cigar companies are said to be waiting for prices to drop to such levels, they said.

Meanwhile, the Indonesian government is reported to have banned imports of cloves, to safeguard the local farmers and so that the cigar companies would buy from farmers. “This step will be a big blow to international cloves trader farmers, as the biggest buyer will be out of the markets”, they pointed out.

The combined output this year of Comoros, Zanzibar, Madagascar, Brazil etc is estimated at 35,000 tonnes. Thus, there is going to be huge buffer stock. All the buyers are on a wait and watch mode.

India is estimated to have a stock of over 3,000 tonnes. The Indian output last season was at around 1,400 tonnes, according to growers in Nagercoil region of Tamil Nadu.

The growers in Tamil Nadu and Kerala have claimed that the current prices are not remunerative given the high cost of production.

The import duty on cloves as per free trade agreements is expected to be brought down to 7 per cent from 15 per cent. This would bring down the prices further. Those who are holding stocks, estimated at over 3,000 tonnes of cloves imported earlier at higher prices, might lose heavily, market sources pointed out.

For the past couple of years, the growers were getting good prices and any fall in it now to below remunerative levels would have a serious impact on the next crop, growers in Nagercoil told Business Line. The cost of inputs also increased correspondingly following the rise in prices, they added.

Indian consumption is estimated at 12,000 – 15,000 tonnes and the country is a major consumer of cloves and as the normal indigenous production is estimated at somewhere between 1,500 – 2,000 tonnes. India continues to remain a net importer.

Published on July 12, 2012
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