Poor quality hits pepper futures

The poor quality of stocks held by futures exchanges is the prime reason for the fall in domestic pepper prices, dealers said on Wednesday.

The firm trend overseas has not been reflected in futures prices here, they said. Pepper futures are currently trading at levels lower than the physical market.

A rise in domestic prices looks likely as supply worries engulf the global pepper market, dealers said.

Vietnam, a leading producer, is tightening supply as it has already exported more than 50 per cent of its stocks, said Kishore Shamji, a leading exporter in Kochi.

"They (Vietnam) are tightening supply by increasing prices, as they have exported over 50,000 of nearly 1,10,000 tonne of stocks," he said.

"Vietnam has raised prices to $1,675 a tonne from $1,650," said another dealer.

Demand from overseas is being diverted to India, as supplies from other countries such as Indonesia and Brazil are also tightening their belts, the dealer said.

Buyers from the US have contracted for nearly 500 tonne of Indian pepper for June delivery, said another dealer.

There is also active demand for delivery in July, August and September.

However, sellers are not ready to part with stocks for less than $1,650 a tonne.

June delivery was sold in the range of $1,600-1,625 a tonne.

Rising Vietnam prices are making Indian offerings more attractive, as until recently, the former used to be cheaper by more than $200 a tonne.

Exporters are mostly staying away from the futures market due to worries over the inferior quality of warehouse stock, and the quantity delivered.

"Exporters are reluctant to take delivery from futures exchanges as they are not sure of quality as well as weight," said Thomas Philip, president of the All India Spices Exporters Forum.

Warehouses mostly lack monitoring systems to check whether the goods received correspond to the quality standards set by exchanges.

Exchange-set quality norms allow maximum 2 per cent light pepper, 0.5 per cent of other matters and a maximum moisture level of 11 per cent in a 1-tonne consignment.

A maximum of 2 per cent variance in weight is allowed.

"However, the moisture level often is higher than 12 per cent while the amount delivered is often 50-100 kg lesser than specified," an exporter said.

"If moisture content is higher than 11 per cent we need to spend money again before processing it," he said.

Pepper futures have been in a bear grip for nearly a month, despite positive signs from the demand and supply front, dealers said.

June and July contract have been trading lower than spot for several days, said K S Girish Kumar, Peninsular Multi-Comex Services, a Kochi-based brokerage firm.

"People are reluctant to take delivery from futures warehouses. Even if delivery is taken the same stuff will be resold in another contract," he said.

Garbled pepper is currently trading at Rs 6,900 a quintal at India Pepper and Spice Trade Association while NMCE June pepper fetches Rs 6,300 a quintal.

NMCE July is at Rs 6,550 a quintal today.

On the NCDEX June contract is at Rs 6,370 a quintal while July pepper is at Rs 6,560.

NCDEX holds stocks to the tune of 18,000 tonne, while NMCE stocks were around 1,500 tonne as of Tuesday.

"Unless a good portion of this stock moves out from warehouses futures prices may stay weak," a dealer said.