Indonesian coffee to revive S'pore market
Indonesian coffee to revive S'pore market
SINGAPORE (Reuter): The Singapore Commodity Exchange (SICOM) is banking on increased participation from the Indonesian coffee industry to breathe fresh life into its robusta coffee contract, an exchange official said.
The delivery of the first 10 lots of Indonesian robusta against the September coffee contract was an encouraging sign, Raymond Chow, SICOM marketing and membership manager told a Futures & Options World derivatives seminar here.
Only Vietnamese and Indian coffee has previously been delivered against the contract, which came into operation in March, but has attracted very limited trade participation.
"They (the Indonesians) use the London and New York markets now, but I think they are becoming more aware of the SICOM contract and will start to use it more," Chow said.
Chow said the exchange was confident it would have a viable working contract by March, 1996 following a SICOM visit to the main Indonesian coffee growing areas in June and subsequent changes in the grade of coffee deliverable against its contract.
SICOM now allows Grade Two robusta with between 80 and 100 defects per lot to be delivered against the contract at a two percent price discount to Grade One -- which was previously the only grade deliverable with a permitted 80 quality defects. Indonesia is the world's largest producer of robusta.
A senior Merrill Lynch official told a coffee conference in London in September that liquidity in the SICOM contract could be improved by a change in its delivery terms.
"It is an ex-warehouse contract and people don't want to pay the premium," Merrill Lynch Global Commodities vice-president Eric Nadelberg said.
Nadelberg said a switch to an fob specification, whereby the seller would be responsible for the cost of moving the coffee from the warehouse and loading it onto the vessel, could make the contract more attractive.
But SICOM general manager Lim Toh Eng responded that an fob contract could be disadvantageous to sellers and that there might be problems caused by a lack of quality assurance.