Chilli prices likely to remain weak on sluggish demand

Written by RajeshRavi | Kochi | Updated: May 31 2012, 09:10am hrs
Chilli prices are likely to remain weak as demand remains sluggish even at lower levels. Reports of lower production in Pakistan are giving hopes of a bounce back. Traders estimate the market to remain steady at the current level till the reports of new crop sowing comes in with the arrival of monsoon.

Faiyaz Hudani Kotak Commodity Services feels that the market would remain weak due to lower exports. Reports of a shortage in neighboring Pakistan may give some support to the market but currently overseas demand is not good. It is heard that China is self sufficient in chilli in the current season and we may not see a surge in exports, he said.

Export of chilli is a key factor in pricing of the commodity. Higher exports always translate into higher domestic prices due to the lesser availability of the commodity. Indian chilli exports during the past two years were higher than normal mainly due to shortage in China.

At the current price level exports are likely to come in. Ramadan demand from the West Asian countries are likely to be good and support in a bounce back, Nalini Rao, research analyst at Angel Commodities said. Exports have been lower this year and coupled with the higher production the market has been struggling. A small increase in exports could help in a revival of the market, she added.

Production in the current season (2011-12) is estimated around 11 lakh tonne as against 9-10 lakh tonne of the previous season, Nalini said. Exports during the first ten months of the FY 2011-12 stand at 169,500 tonne as against 205,000 tonne of the previous FY, reports the state-run Spices Board. Value of exports during the same period is up by 26 %.

Veteran chilli trader Peraiah Ravipati from Bellary does not concur with the view that exports are key to domestic pricing. Exports are only 15-17% of the total production and not price elastic. Domestic demand is the key factor in the chilli market and consumption does not increase as price declines, he added. He expects the market to remain steady at the current level till reports of new crop sowing come to the market. If the area under chilli remains more or less same the market would remain weak. Only a large decline in acreage would support the market, he added. Peraiah Ravipati estimates the current chili supply to be more than 30 % when compared to the demand.