Pepper to stay hot on likely supply crunch

The pepper futures market has been highly fluctuating last week at a time when the overseas origins were showing a firmer trend. Such an instability in prices without having corelation to the market fundamentals is being viewed by the market sources as “not a good sign for the trade”.

As many of the brokers are common for both the share and the commodities makets the weak trend in the share market is often reflected on the commoditites trade.

Weak long position holders for want to margin money following the decline in the share market often liqudiated their positions and that in turn pulled the market down, market sources told Business Line.

In fact, in the international market there appears to be a likely squeeze in availability because of decline output and that is reflected so far on the price trend. At the same time, demand is likely to persist as many have been postponing their buying on the anticipation of price drop once the Indonesian and Brazilian new crop hit the market. Add to this, many have been buying only hand to mouth given the prevailing high prices. Given this scenario there is every possibility of buyers entering the market. The market world over is expected to stay hot on likely supply squeeze, they claimed.

Meanwhile, in India the festival season is set to commence after the Nagapanchami and the demand for pepper is expected to pick up in the coming days. On other hand, growers in Idukki are said to be apprehensive of decline in the next crop consequent to the continuous rains lashing the growing areas in the district. Rich farmers are also of the view that if the produce is processed and preserved scientifically it could be stocked for eight to nine years and thus they could release it when the prices reached their expected levels.

It is evident from the prevailing trend in the spot market where there have been no sellers of late, they said.

During last week the bear operators were in the driving seat and hence the market fell. August, September and October contracts dropped by Rs553, Rs516 and Rs403 respectively to close at Rs28776, Rs29,314 and Rs29,819 a quintal.

Total turn over increased by 7889 tonnes to 57,074 tonnes. Total open interest fell by 2,436 tonnes to 11,988 tonnes.

Spot pices declined by Rs100 during the week to close at the weekend at Rs27,700 (ungarbled) and Rs28,700 (MG 1) a quintal.

Indian parity in the international market was at $6,600 - $6,650 a tonne (c&f) and remained nearly competitive.

IPC Report

The black pepper market, according to the International Pepper Community (IPC) remained firm at most origins, with the exception of Sri Lanka.

In India, trading was slower but prices were still relatively high. Spot price of Malabar ungarbled increased by INR 100 per 100kg from INR 27,800 at beginning of the week to IND 27,900 on Wednesday. In dollar terms however, average prices of pepper in India decreased marginally, due to weakening of Indian Rupees against US dollar.

In Lampung, a marginal price increase was recorded. Although the harvest in North Lampung has started, since output was low, trading activity was limited. In Vietnam and Sarawak, the prices were stable both local and fob. In Sri Lanka, farm gate price decreased by 3 per cent.

WHITE PEPPER

In Bangka price has increased by 3 per cent locally and 2 per cent in fob. Stable prices for white pepper were recorded in Sarawak and Vietnam.

EXPORT FROM VIETNAM

In July 2011, Vietnam exported 10,980 tonnes of pepper as against 12,050 tonnes in July 2010. During January – July 2011, export of pepper from Vietnam was at around 79,600 tonnes, a

decrease of around 4,300 tonnes from export of 83,900 tonnes in the corresponding period of last

year. Although down in volume by 5 per cent, an increase of more than 50 per cent in value was

registered. The United States of America was the main market for Vietnamese pepper absorbing

17 per cent which is an increase from 14 per cent recorded in the last year, followed by Germany (10 per cent), Netherlands (7 per cent), United Arab Emirates (8 per cent), India (6 per cent) and Egypt (5 per cent).

Overseas Market trends

Pepper prices were reportedly creeping upwards during the last week. Buyers have been somewhat absent, due to the summer holidays. But, as buyers are coming back to work, “we are noticing an increase in demand for the fourth quarter positions. Essentially, the bullish mind set about the future pepper market has taken hold”, a report said.

Vietnam, having shipped out an estimated over 80 per cent of its output stocks theres is said to be limited and that are in the held by financially strong hands.

Indonesia reports, that a good portion of the crop has been harvested. The crop is estimated to be less and between 12,000 and 20,000 tonnes, the trade claimed.

Brasil is in the midst of harvesting but have sold during the month and not pressured to sell for the moment . The exporters are increasing prices with every sale. Local USA market has firmed with limited trades on the spot but at ever increasing levels. Spot positions on both black and white appear to be tight with a lack of selling pressure. Though there is demand for forward delivery positions, dealers are reluctant. In order to get a price for the desired positions, they are based on carrying stocks for the duration of the delivery period as origins sellers are are not willing to sell futures either.

The Muntok white pepper crop in Indonesia is being harvested yet there is no selling pressure as farmer stocks are being picked up by the exporters.

The Chinese crop is much smaller than usual - The prevailing Chinese price is at around $9,000 a tonne which will continue their interest in fulfilling their requirements through Vietnam.

Vietnam which is much cheaper. Currency issues will become an increased factor in pricing for the balance of the year.

Due to the budget deficits and increased debits of the USA government we see an increased weakening of the dollar against Asian currencies.

e.o.m.

COMMENT NOW