Indonesian upheaval disturbs commodity trade
Indonesian upheaval disturbs commodity trade
SINGAPORE (Reuters): Asian traders fear any prolonged political and social upheaval in Indonesia would stifle commodity business in what is one of the world's top raw material exporters.
"Cocoa shipments are still moving, but it could be a different story in seven to 10 days if they don't resolve the political mess and the social unrest worsens," said a commodity trader in Singapore.
Around 500 people have died in riots since mayhem broke out in Jakarta last Tuesday after six students were killed by security forces during a protest against President Soeharto.
The Indonesian archipelago is among the world's leading exporters of tin, copper, nickel, gold, coffee, cocoa, tea, palm oil, coconut oil, rubber and plywood.
The islands also import large amounts of rice, wheat and sugar to feed their 200 million population, as well as metals for power, construction, cars and other consumer goods.
The country is set for record rice imports of around five million tons this calendar year to top up a local crop withered by an El Nino-induced drought.
Much depends on how long banking, finance, insurance and shipping services remain disrupted as people fear for their safety and stay home.
Bank Indonesia, the Indonesian central bank, says all banking operations, including clearing, will resume today, but traders worry that it may be a while before services get back to normal.
A burning question is what will happen to the rupiah when the market resumes trading.
Some traders fear it will slump from its current level of 10,200 to 11,200 to the dollar and wreak further havoc on import/export business.
The flight of thousands of expatriates and ethnic Chinese, vital to business, and feelings of fear and insecurity among ordinary people will take its toll too.
The crisis is hitting commodity imports as traders want to be sure of payment before they unload their ships at Indonesian ports.
"I want the cash before I discharge my ship. Even if you have a letter of credit, it can be too dangerous," said a grain trader.
Indonesia bought 100,000 tons of U.S. wheat last week for June and July delivery under that country's export credit guarantee program.
They need to buy more.
A Thai newspaper reported on Saturday that rice exporters still had not received letters of credit for orders to deliver 200,000 tons of much-needed rice to Indonesia in June.
Ports appear to be operating normally, but slowly, as employees stay away, but containers are in short supply hampering shipments of coffee and cocoa butter.
A number of commodity processing, refining and manufacturing operations will have been affected by staff absence.
On the output side, tin, copper, nickel and gold mining is mostly in remote locations, far from the rioting, looting and burning. Companies say operations continue normally so far.
"If the political and social crisis gets worse, there could be some impact but for now, they are functioning normally," said a mining official.
One small Indonesian gold miner Aurora Gold said on Friday it had halted gold shipments from its East Kalimantan mine to Jakarta for refining as it was too risky, but mining itself was not affected.
Plantation commodities are more susceptible to disruption.
Crops may not be harvested as fast because of a shortage of labor. They may not be transported from upcountry to port as quickly as usual and shipment may be slowed by banking or administrative delays, or by a shortage of container availability.
"The coffee collectors do not want to send coffee to the port. They are worried about security," said a trader Saturday in the main coffee port of Bandar Lampung in south Sumatra.
"Students are preparing some demonstrations. No one knows what's going to happen here in the next two to three hours," he said.
A foreign trader in Bandar Lampung reported on Friday that coffee trucks had been robbed and even one driver killed. "General insecurity is increasing. This is a new phenomenon for Indonesia," he told Reuters.
Other crops such as oil palm, rubber, cocoa and coconuts are vulnerable to plantations and processors keeping back supply and being fearful of moving commodity in rural areas and to port.
But the impact may not be long term if order is restored and anarchy is prevented from spreading into the port and rural areas on the islands of Sumatra, Sulawesi and Kalimantan where many of these crops are grown.