Pepper trade has changed completely in the past few years and comprehending it is becoming difficult. Take the current scenario, where there is plenty of pepper in most of the origins, but the price is range bound and unwilling to come down, Jojan Malayil of Kochi based Bafna Enterprises said. European and US imports for the first half of the year is lower by 20-25% and the production is estimated to be higher by 7%. Yet the market is quoting historically high prices, he said.
Jojan feels that the farmers in Vietnam have changed the market dynamics by holding on to the crop and selling at staggered intervals. These farmers are very cash rich and have the ability to hold the crop. So they sell when they want and get good returns, he added.
Reports say that Vietnam pepper exports for the first seven months of 2012 have decreased volume wise but have climbed value wise to the tune of 17.1 % at $532 million. Vietnam, the largest producer, is projected to have production of 1,10,000 tonne for the 2012 crop. The production estimates shows an increase of 10,000 tonne when compared with the figures of 2011. Global production is seen higher in 2012 by 7.2% at 320,000 tonne largely due to higher production reported by Vietnam and Indonesia.
Internal consumption by the producing countries during the year 2012 is projected around 124,870 tonne and exports during the year is pegged around 246,045 tonne as against 242,250 tonne during 2011. Report suggest that global pepper stocks will grow by about 25,000-30, 000 tonne in 2012, but stocks are built up in origin and not at destination.
There are several things that have changed in the past few years. The most important is that cargo reaches the destinations faster due to speedier vessels and new ports that have sprung up across the world. From Indonesia to Vietnam it is just two days, from India to Europe 14 days
and India to US just 21 days, P Nandakumar, a trade consultant from Kochi said. This has helped in cutting down the inventory level to a large extent. Demand now comes in sporadic spurts and the market has become volatile, he added.
Earlier the market was less volatile and moved according to the variations in global supply of pepper, he said.
He feels that the second important change is the production increase seen in Indonesia. IPC reports that production in Indonesia is projected to increase to 41,000 tonne from around 33,000 tonne during 2011. Earlier the Indonesian production ranged around 20,000-25,000 tonne and now it has shown a dramatic increase in Lampong province. Initially they were facing some problems from tin mining, he said.
Faiyaz Hudani at Kotak Commodity Services also feels that Vietnam and Indonesia have become important in the trade. Cambodia is a new producer of pepper. Lot of Indian players have also set base in Vietnam indicating that India is no longer a market maker in pepper, he said.
Stocks in India have moved to the exchanges due to the volatility. But the participation from farmers continue to remain low and open interest positions are lower around 7,000-8,000 tonne, he added. Vietnam is also importing lot of pepper as it has become the base. Many Indian players now function from there, Jojan said.
He believes that the Indian market has completely de-coupled itself from the global trend and is in its own trajectory and driven by speculation from the exchanges.
Fundamentally Vietnam and Indonesia have plenty of pepper and demand is low due to the continuing economic problem in the Euro Zone and volatile currencies of other nations. Buyers are only buying the minimum volume, he added.
Nandakumar sees new markets in Africa, Asia and east Europe consuming more in the coming years as the US and European market has reached its potential.
Earlier pepper moved to Africa from France and to Russia from Europe. Now they are buying on their own. Indians are reluctant to sell to African buyers because of payment issues but soon direct trade would be a reality. These changes could mean that traditional players and markets would give way to the new entrants, he added.