Indonesian coffee supplies tight as traders seek higher prices
Indonesian coffee supplies tight as traders seek higher prices
SINGAPORE (Reuter): Indonesian coffee supplies are very tight with several exporters hanging onto their beans in the hope of seeing higher prices, while a sharp fall in output is aggravating the situation, traders said yesterday.
Exporters who bought coffee from Indonesian farmers when prices were hovering near their peaks at US$2,600 a ton FOB Lampung a few months ago have bulked at selling coffee at current levels of around $1,555-$1,655 a ton, they said.
"The exporters are sitting on the coffee. They bought the coffee when it was at $2,600. They don't want to take a loss," a dealer said. "Some of the coffee is beginning to come out, but very slowly."
The tightness in supply is compounded by an expected 30-40 percent drop in Indonesian production of robusta beans to around 290,000 tons this year.
A few dealers are also beginning to fret over the drought in Indonesia, the world's third biggest coffee producer after Brazil and Colombia, which is believed to be linked to the El Nino weather phenomenon.
"It looks pretty bad. The cherries (on the coffee trees) will shrivel if there's too much heat. It hasn't happened yet, but some people are becoming very worried," one said.
Most of the trade, however, said it is premature to say if the 1998 Indonesian coffee crop will be hit by drought.
"Some people may just be trying to talk up the market with the price so low. It's too early to be worried about the dry conditions," one trader said.
"It's dry, but it's just not a concern yet," a dealer added. "If it lasts three weeks or more, then we'd be worried."
The El Nino, named after the Christ child, occurs when warm water appears off the western coast of South America and wreaks havoc with world weather patterns.
The century's worst El Nino in 1982/83 caused withering drought in Indonesia, the Philippines and Australia.
The robusta crop in Vietnam is coming along fine with a handful of trading houses clinching some small deals for its benchmark Grade 2 coffee, 8.0 percent black and broken.
"There's small parcels of Grade 2 being done out of Vietnam, but the numbers are very small and negligible," a dealer said.
Vietnam's robusta exports are expected to rise in the 1997/98 (November/February) season by about 10 percent to 300,000-320,000 tons, which would allow it to overhaul Indonesia as Asia's leading coffee exporter.
Robusta coffee is more bitter in taste than higher grade arabica and is used extensively in instant coffee.
Asian physical coffee trade is quiet due to the summer holiday period in they major U.S. and European markets.
"The buyers are away and you're in between crops. It's going to be quiet," one trader said.
The London robusta market is also expected to remain quiet although it could produce surprises after New York arabicas posted strong gains on Tuesday.
"I wouldn't be surprised if it suddenly woke up," a trader said. "The betting though is that London will be quiet."