Poor global supplies likely to trigger rally in pepper

The pepper market seems to be on the verge of a prolonged bullish phase because of an expected drop in global supplies. A shortfall of 40,000-45,000 tonne between demand and supply could move the market up in coming days, traders said. With the carryover stock already low by 32 % at 79,124 tonne, the fundamentals look promising for a bull run in pepper, they added.

Indian pepper (MGI asta quality) was quoted at around $4.08 per kg for the week ended June 25 as against $3.90 for the week to June 18. In the domestic market, the commodity was selling at around Rs 170 per kg for the week ended June 26 as against Rs 166.33 in the previous week. However, the market corrected a bit on Friday due to profit booking.

?Default by Vietnamese traders is adding to the concern that stocks there might be low. Indonesia has already sold the most of their crop of July?August, and with Brazil projecting a shortfall in the new crop, the sentiments are there for a rally,? Jojan Malayil of Bafna Enterprises, the country?s largest exporter of black pepper, told FE. He expects India?s pepper exports to increase due to low availability in other origins.

?Exports in the second half of this fiscal should be around 10,000 tonne. Higher prices would help supply increase in the domestic market,? he added.

In a report published in May, the Agricultural Market Intelligence Centre (AMIC) of Kerala Agricultural University said that pepper prices were likely to rally by 15-20% in the next three months on global supply woes. The study showed that global production in 2010 will be lower than in 2009 because of fall in Indonesia and Brazil output on erratic weather.

?In the short term (till July), pepper prices will remain firm due to low global black pepper supplies. In the medium to long term (August onwards), the price trend will depend on demand from overseas and the domestic market, production in Indonesia and Brazil and price parity of the major origins such as Brazil, Indonesia, India and Vietnam,? Nalini Rao of Angel Commodities said.

Global pepper supplies are down because production has slumped by around 2.78 lakh tonne this year, while consumption has risen by almost 3.20 lakh tonne, which should support the market.

In the domestic market too, stockists and farmers will not sell their pepper at lower levels which will provide support to the prices,? Nalini said.

However, Kishore Shamji, a leading exporter and a member of the India Pepper and Spice Trade Association, is sceptical about the bull rally. ?We cannot be sure about Vietnamese position. If they are really short, the market could up, or it could be a strategy by players who hold enough.?