Global Clove Markets 2017 July 19, 2017
“World Cloves Market Would Remain Firm and Speculative During 2017”
Indonesia was producing consecutive 2 years of good crops during 2015 / 2016.
During 2015 Indonesia Produced around 100,000 Metric Tons and During 2016 Indonesia Crop Production was around 80,000 Metric Tons. Due to adverse weather conditions, heavy rainfalls with thunder storms due to La Nina climatic conditions in January, February and March 2017 and further erratic rain falls with thunderstorm during April 2017 (flowering Season of Cloves Buds), adverse weather has effected the upcoming crop severely during the flowering season (unopened flowers / ripped clove buds) as Clove trees require a warm, tropical climate with an average rainfall of at least 1500 mm per year. Clove trees are very susceptible to stress. Producing areas that undergo a dry season are good for flowering but the current weather phenomena are extremely harmful for the coming crop of 2017. Moreover the cloves production has a crop cycle of three years, so as the two last years were good in Indonesia, the coming crop usually harvested during June – July which is delayed till September 2017 will definitively be small. Botanically its known that when trees lose their leaves, they become weak, so the quantity of flowers will be smaller for the coming years, which means less clove bud. As a result of above analysis of previous weather conditions of heavy rainfalls with thunderstorm during previous 1st Half of in main producing regions of North Sulawesi, South Sulawesi, East Java and West Java that the next Indonesian clove crops will be impacted for at least two coming years.
Indonesia being the largest producer of Cloves is also the largest consumer in the world. Indonesia consumes around 90% of its own cloves production. The estimated Clove consumption in Indonesia during 2016 was around 80,000 Metric Tons to produce 450 Billion Cigarette Sticks commonly known as Kreteks, manufactured by 714 Small and Large Scale industries. Kreteks are manufactured by Minced dried clove buds weighing about 1/3 of the tobacco blend. Kretek manufacturers are also important source of tax revenue, sending USD12.91 Billion into State Coffers last year, the third-largest contributor of any industry in Indonesia. Consumption of Kreteks is also increasing 5% annually as per World Health Organization report of 2017. Taxation of figure of USD12 Billion proves that Kretek Industry can pay any extent of price to acquire Cloves for manufacturing of Kretek Cigarettes.
During August 2016 till November 2016 Cloves prices plummeted to the levels of IDR75,000 per Kilo at bush levels but started to rise during December 2016 and till now have risen to the levels of IDR135,000 – IDR150,000 per kg at bush levels. Whereas the farmers cost after drying the Cloves Bud is same as today’s prevailing prices , which would be moving up during 2nd Half of 2017 as farmers would be reluctant to sell at these prevailing levels as there is good export demands from other consuming countries, mainly Middle East, Europe, Russia, China and South East Asia. Beside that local kretek manufacturers are also willing to bulk quantities but are also afraid to increase their buying prices too rapidly to avoid panic in the market, but slowly and gradually they have increased their buying prices upto IDR135,000 – USD10.00 per KG. But we firmly believe it’s the right time to enter otherwise opportunity would be left behind for the bulk consumers. We firmly expect the farm level prices to reach at least IDR200,000 during 2nd Half of 2017.
Beside relying solely on the buying spree from the Kretek Manufacturers, Clove producers and associations have also focused on exports markets. During end of last year 2016 the offers were seen at USD7.50 Per Kg which has now increased up to USD11.00 Per Kg for Exports. Further increase of minimum USD3.00 – USD5.00 per Kg is expected during 2nd Half of 2017. Since, August 2016 till December 2016 Indonesia was the most expensive origin in export markets, even though the dynamics were not bleak for exports. As Indonesian Cloves obtains most premiums in all markets due to its beautiful color, more commonly known as Lal Pari (Red Fairy) in International markets. Market fundamental seems to be bullish for the entire year of 2017, looking festive seasons ahead even before the start of new crop, even though the new crop of 2017 which is also expected to be short by around 70% overall from Indonesia and harvest expected to be delayed as well till August 2017. Further strengthening of the prices cannot be ruled out. As Northern Indonesia would be producing around 20% of the normal crop whereas Southern Indonesia would be producing merely 30% of the normal crop harvested in comparison to last year. So the cumulative shortage is expected to be around 70-80% of the normal and the expected crop size from Indonesia would not be more than maximum 20,000 – 25,000 Tons during the current year crop 2017.
Madagascar crop for the year 2016 was around 9,000 Metric Tons and the crop started during October 2016. Madagascar export market is mainly focused on India due to preferential trade agreements; India is usually buying around 6,000 – 8,000 Metric Tons annually solely from Madagascar against India’s total consumption of around 18,000 – 20,000 Metric Tons. But due to de-monetization implemented during early November 2016, local markets in Madagascar plummeted due to lack of Indian buyers. Madagascar export prices touched the bottom of USD6.50 per kilo during November / December 2016. During the beginning of 2017 sudden buying spree was felt mostly from the Indian buyers as their local stocks were consumed and the market felt a local supply crunch. Madagascar Exporters have regularly increased their prices of late since January 2017 as most of them made big losses at the start of the season, when they did contracts at USD6.50 – 6.80 per kilo FOB during November / December 2016.
Currently exporters are offering prices around USD9.00 – USD9.50 per Kg CNF during July 2017. Several exporters maintain to expect a better price this year. As almost 8,000 Metric Tons have been shipped from Madagascar since October 2016 till date to Europe, Russia, Middle East, North Africa, China and Indian Subcontinents including India, Pakistan and Bangladesh.
As per stance obtained by exporters in Madagascar, the prices will not any more match the one requested by the buyers, who are expecting prices below USD8.50 per Kg FOB as very less carry forward of around maximum 1,000 1,500 Metric Tons is left with local middle men and exporters in Madagascar till filing of this report in July 2017. Madagascar exporters are expecting to see the Singaporean buyers to enter strongly in the market to supply the potentially short Indonesian market. The quantity of headless cloves is increasing regularly in crude cloves brought by collectors since January, which impacts the export quality parameters. Beside Indian buying spree, other factors effecting Madagascar Cloves is the entrance of Chinese buyers in Madagascar as they are quite used to shipping out bush quality cloves and finalising the products in China, which makes the cost price even lower for them. As China is also an emerging buyer of Madagascar and Comoros Cloves since last 5 years.
In Comoros, the crop is delayed with less availability expectations. Farmers are reluctant to sell as the maximum availability is expected NOT to increase more than 2,500 – 3,000 Metric Tons. Indian and Chinese demand is expected to observe the availability from Comoros Cloves. Chinese underlying demand for medicinal herbs is around 10,000 Metric tons which is increasing annually around 10% whereas availability is limited and the stocks are in the hands of collectors, who are asking for similar prices to be those from Madagascar. However, the quality of the Comoros cloves due to high moisture content is not as good as that seen in the current goods from Madagascar Cloves shipped during the last crop.
Brazil had an exceptionally good crop of around 5,000 Metric Tons, which have been mainly bought by US, South America, Europe, Middle East, Russia, North Africa, Pakistan and Bangladesh. Currently there are no more offers directly from Brazilian Exporters. Headless Cloves with the ratio of 60% are currently available for direct shipments from Brazil. Good quality ready cargoes can be obtained from Singapore and Dubai at USD8.00 per Kg up to USD8.50 per kg and it can be considered as good buy option for grinders.
Indian market touched INR-665.00 per kilo for good quality Madagascar Cloves but recently it has decreased to INR-625.00 due to the arrivals of low priced contract shipments and prevailing GST issues. We strongly prefer new entrants to enter the market at the levels of INR 610.00 – 620.00 per kilo, once the profit taking is over. As, no ample availability is foreseen ahead till the start of new Madagascar crop in October 2017. During July and August 2017 Comoros Crop would be available but that too in limited quantities of around 2,500 – 3,000 Metric Tons, which would be absorbed immediately.
Summary – Prolonged Tightness Ahead
- Cloves market expects to remain tight for a long time due to a number of factors:-
- Less crop forecasted for Indonesia against its annual consumption of minimum 100,000 Metric Tons due to erratic rains with thunder storms and adverse weather conditions ( La Nina) during Jan / Feb / Mar / Apr / May 2017. The main Cloves flowering season occurs during these months Jan till April.
- Zanzibar had a small crop this year and some Indian buyers have purchased Zanzibar cloves at prices of up to USD9,200 PMT India. Currently, ZSTC is reluctant to offer.
- India still needs to cover another at least 8,000 Metric Tons beside other consuming countries also need to replenish their stocks by end of July / August / September 2017 due to forthcoming festival seasons and Winter Season would be followed after Festival Season. South East Asian demand would be on the rise due to Eid festival season starting from September 2017 onwards.
- Basic Botanical reasons of wetter weather conditions and Clove crop cycle of consecutive 2 years of good crop.
- The next crop in Madagascar and Brazil will be also small with a “low” quality because the next crop will be small as after two good crops and cyclone aftermath hitting Northern producing region in early March 2017.
- The Malagasy and Comoros packers are convinced the market will rise in the coming months due to the potential small crop in Indonesia. In addition, they expect to see the Indian buyers coming back. Foreseeing buyers from Singapore to enter strongly in the market to supply the potential scarcity in Indonesian market.
Currently, the advice to potential consumers is to cover themselves till October 2017, as it seems still cheaper to buy from resellers and from certain local traders, who might still have long positions and looking forward to book their profits on low price contracts being received at destination. As arrivals would be completely subdued by end of June 2017.
These are the words and thoughts from James Mathew (https://www.facebook.com/pages/Guatemala-Cardamom/1437122399893909). Van Aroma concur with the facts, figures and synopsis on those points from Indonesia.