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Since the beginning of the year, Indian buyers are relatively quiet.
Despite the small crop forecasted, the Indonesian cloves market is flat.
In the Comoros, the harvest has started in June, as usually. Availability of the goods is currently satisfactory whereas the quality remains average, due to a high percentage of small cloves (more than 10%). Nevertheless, a 350mt crop is still foreseen by our local partners.
Price levels are relatively competitive for the time being. However, an increase in the local market is to be feared. Indeed, if the total of expected quantities to export of local businesses is taken into consideration, potential exportations reach 7000 mt and more.
One of our local friends reported that new Indian buyers came to Anjouan lately, in order to resupply even in green buds. This statement confirmed the risk of local prices soaring up.
In Madagascar, harvest might be smaller than expected in May. Indeed, the rainy weather that last since April in the North leads most of green shoots to become leaves instead of flowers (clove). Currently, packers give the following forecasts:
– Southern Area > 3500 mt: If cloves reach Tamatave too wet, they will certainly be small with a bark color.
– North Area < 4000 mt: goods available in Octobre - Carry-over of crop 2015/2016 should be below 2000 mt Several exporters have confirmed that largest collectors are sitting on stocks of 100/200 mt each. Moreover, as the prices has decreased since March, they seem not ready to sell.
Today, it is difficult to have a clear idea about Malagasy offers. Because of the vanilla pre-financing, the Ariary has increased by 10% against EURO and USD in the past 2 weeks. Exporters have raised their offers in foreign currency, except the ones who have stocks and have to finance the vanilla.
Most qualities are fairly acceptable – current price levels (crop 2015/2016) are as follow:
CG3 FAQ USD 8700 pmt CFR EMP
CG3 Premium USD 9300 pmt CFR EMP
HPS quality USD 11500/12500 pmt CFR EMP
This can be read in Indonesia this week:
1° Indonesian clove crop has started in some locations but prices seem to be mixed. International reports say less crop but locals say normal crop. A bit of mixed stories. Bottom line is cloves from large areas do not seem to been harvested yet and only small lots are coming from some places in Java.
2° CLOVES – With rumors flying about of heavy infestation in Indonesian Clove production which would affect coming crop and a documentary to back it up there was much excitement in the Clove circles. The Indonesian Kretek (Clove Cigarette) did not budge and the ruse was discovered and soon fizzled out. The fact is India consumes some 12,000 Mts of Cloves per annum – whilst Indonesian cigarette manufacturers need 80-100,000 Mts annually – but usually speculative on twice that figure with a series of market rumors and manipulations. Clove is at a very comfortable level and we do not see Indonesian Clove prices diving or rising substantially in the short term. The fact remains that crop estimates this year are at a healthy 80-85,000 Mton figure and only speculators are driving up the market albeit not to successfully.
Although the worm infestation is plausible, the consequences on the clove production is less than what is said by the rumor. I tend to think that El Nino had a real impact on the production. In addition to the 2 previous years of relatively good crops, it seems understandable to have an average one this year. Considering these two statements, we can expect cloves’ prices to be firm and speculative, even if this hasn’t happened yet.
According to us, explanation for the Indonesian market being silent are:
1° Cigarette manufacturers strategically wait until the end of the season to buy, as they have enough stock. An information from Singapore relate that those manufacturers have 2 years of consumptions, which means that they are able to hold six months without buying. Note that cloves must be matured approximately 18 months before being used in Kretek.
2° Recently, the Indonesian government has changed rules for the local taxes payment, in order to get the accurate amounts. Kretek manufacturers now have to pay those taxes, and no more local traders or farmers organizations, as they have a real accounting organization. Consequently, the 5 largest Kretek manufacturers agreed to limit cloves’ prices around USD 9000 pmt.
As a result, local traders are trying to find foreign buyers as they expect to get better prices.
For European buyers, Indonesian clove is less interesting because of customs duties.
In mainland Tanzania, harvest is starting in August. It is currently possible to offer “farmer quality” cloves, what appears to be the best option regarding clove spice for now.
In Brazil and Sri Lanka, it is still too early to know the next crops size.
The market trend is dull. India might have to come back in the market soon in order to push it, as they have stopped buying massively since February.
It seems like the right time to take position in favor of competitive traders, such as in Dubai or Singapore, even if, sometime, the quality doesn’t meet the US or European standards.
As usual it is very difficult to get accurate information on the production. For the time being, our feeling is the following:
Carry-over of 2013/2014: 1000 to 1500 mt – Goods coming from South – lot of small cloves with greyish and black colour.
Crop 2014 2015
Southern origin: 500 to 1500 Mt – already collected but the shippers did not accept to pay high prices for these goods. We think that some collectors are still carrying stocks.
Tamatave – Fenerive area: 4 000 to 5 500 mt – the crop has started. Shippers complain because the goods are wet and slightly dirty. Some of them say they lost money on their first shipments.
North Madagascar (Maroantsetra area) 1000 to 2000 mt – cloves harvested before the opening of the campaign are relatively small for Northern material.
So the quantity available for export should be between 6500/7000 and 7500/8000 Mt this year.
The crop has officially started on the 25/10/14. The local market is increasing everyday (today between 22 000 Ariary/kg). Previous weeks, some big local players were building stocks, and it seems that farmers and collectors are making retention now.
In fact the shippers who have stocks from the previous crop, have cost prices in USD 9500 $/mt FOB because of the increase of USD against Euro and Ariary.
So, their strategy is to buy at higher prices for the following reasons
1° prevent other shippers to buy or to sell with good margin
2°average their stock value with potential lucrative profits
They are convinced that they will become the kings of the clove world – they are waiting for Indonesian and Indian buyers…
The consequence is the export market is relatively quiet, because most of the buyers were expecting better prices with the Malagasy crop.
Since early October, we got few inquiries from small Indians traders. The US buyers seem to wait for the Brazilian cloves. The Europeans were waiting for the Malagasy offers but they find prices too high, even if stocks are low.
This year, Malagasy cloves market might change a little bit: the Malagasy authorities have accepted the recommendations of the cloves exporters committee. They have published a list of authorized companies able to export and they have accepted amendments on CG3 specifications under the ones the containers can not be exported.
The goods have to be inspected by the lab with whom we are working since 2014. If the goods are not as per new CG3 specifications (moisture < 12,5% and stems< 3%), the Customs do not allow the exportation
Currently, all the shippers complain the raw cloves are still too wet. They have minimum 20% of lost during the drying and cleaning process to get goods as per the CG3 specifications. Few shippers are stressed because they have sold cloves as CG3, but they can not able to export the containers because the quality is not the right one.
Moreover 7 containers ready to be exported by non authorized companies (2 Chinese and one Sri Lankan) are blocked by the Customs.
On our opinion the market will remain firm until end of this year, due to the new quality regulation and the local speculation.
The crop is over at Anjouan – The market is firm and it is difficult to get offer at present time. Shippers say that the Phillips Morris’s agent and a continental Chinese who has build a warehouse this year, are still buying at high prices.
Few stocks are available but the FOB prices for CG3 are already 15% higher than Madagascar cloves FOB.
The crop is starting and the quantity would not be big this year – The first prices given by Brazilian shippers are around the Malagasy levels, which seem quite high for this origin.
We feel that the clove stems market should rise more than usual, because more and more people are using stems instead bud for clove powder or to offer cheap qualities of cloves.
Madagascar : Shippers say that we have to wait until the end of the crop although farmers collected them with cloves. It means that most the clove stems are blended with clove by the collectors. So, shippers might try to increase the potential value of their by-products to sell their cloves at reasonable prices.