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.