Despite reports of global shortage for the second consecutive year, the pepper market continues its divergence from the fundamentals and has remained sluggish and range-bound. Experts blame the speculators in the Indian commodity exchanges for the downfall, as genuine players are absent due to quantity restrictions. FMC has opted for the quantity restriction to lessen the speculative activity and reduce the volatility in the pepper contracts.
The market is bucking the usual trend of good consumption during September-October by the US. ?US traders will become active during the period to cover for the winter requirement and prices usually surge on it,? a trader said. Domestic consumption also picks up with the beginning of festival season, adding to the firmness, traders said.
On the supply side, reports coming in from various sources suggest that the next crop (2007-08) will also be on the shorter side. Indian crop could be lower by 15-20% from the 2006-07 crops due to widespread damages caused by heavy rains in the growing regions. For 2006-07, the Indian crop is estimated to be about 45,000 tonne. Brazilian pepper trade board has also reported that the 2006-07 crop may be shorter from the earlier estimate due to drought. Vietnam, with 52,500 hectares of pepper and an average output of 2.3 tonne per hectare, is also reporting a lower crop for 2007-08.
Faiyaz Hudani, research analyst at Kotak Commodity Services Ltd, puts the long-term outlook as bullish as production domestically and internationally is short. ?Total stock in India as of today is around 15,000-18,000 tonne.
Around 9,950 tonne is in the exchange warehouses,? he said. Sellers in the spot market are not ready to sell at lower levels and are holding on to the stock, he added.