Shortage of raw materials and Corona consequences affect spice industry

28 September 2021

(Bonn, 22 September 2021) The significant increases in raw material prices as well as additional costs for energy, packaging and logistics are placing a heavy burden on members of the German spice industry.

"Supply bottlenecks, increased demand in the countries of origin and additionally problematic weather conditions in Southern and Eastern Europe are aggravating the harvests for 2021 and causing distress for the spice industry," says Dr Markus Weck, Secretary General of the German Spice Industry Association, describing the situation of its members.

Raw materials are currently in short supply in many areas of the manufacturing industry - the German spice industry is also being affected. The reasons for this development are numerous and partly a direct consequence of the worldwide Corona pandemic: a lack of harvest workers in the countries of origin, an overall slowdown in production and port closures due to lockdowns worldwide are causing crop failures and shortages. Extreme weather conditions such as heavy rain in Southern Europe or enormous drought and forest fires in Eastern Europe exacerbate these failures.

The spice industry is particularly dependent on imports: Distortions in freight and logistics have a direct impact on the spice trade. The consequences, such as the lack of availability of shipping containers, are omnipresent and lead to drastic cost increases. To give an example: The pure freight costs for a container from China are around 900 percent higher than the freight costs as they were before the pandemic. This has an immediate impact on the import of classic spices such as pepper, paprika, ginger, nutmeg, cinnamon, onions, cumin and turmeric. "Our members do not expect the situation in the freight sector to ease until the second half of 2022 at the earliest. Until then, the situation will remain extremely tense both for classic spices and for the purchase of many other products such as mustard seed or Mediterranean herbs," reports Weck.

In this difficult initial situation, companies in the spice processing industry are additionally burdened by other factors. One such factor is the development of energy costs, especially in the form of the CO2 pricing. Since January 2021, the price per ton of carbon dioxide has been 25 Euros - and this is set to double by 2025. The situation is similar for the costs of packaging materials. Plastics, composites and cardboard packaging in particular cost significantly more than in previous years; surcharges of 30 to 40 percent are not uncommon. For packaging materials such as steel and sheet metal, the costs have even almost doubled in many places

RGT Pepper Market Report Week 39/ 2021

 Vietnam – market remains steady entire week with raw material in firm standing full straight week at level 81,000  VND/kg for raw material trading with local dealers allegedly pushing up the prices even higher.
Thus, opening market today, raw material went up at level VND-81,500 VND/ kg. 

Eyeing in Vietnam New Crop 2022.
An outright bullish fourth quarter is expected to persist and the focus now of  many is securing position for next year crop. However, offers for new crop from sellers remains elusive. Reportedly, majority of last year and this year’s crop are still in the hands of farmers and traders being offered at a premium price. Foreseeable lesser crop and harvest delay brought by extreme weather condition are also anticipated, more later than this year’s crop of which could add up to market pressure. 

With the current scenario both are siding concluding that market will go higher by next year in retrospect of  Indonesia’s crop outlook for 2021-2022. 

This is now more logical as looking back at this year’s market new crop opening prices how majority assumed high pressure on side of farmers/shippers. But then quite the opposite, market went to a new record high direction that overwhelmed almost everyone.

Indonesia – relatively stable this week due to less volume available to trade in. Indicative pricing reportedly at range of $4200 FOB seeing no pressure from seller’s side.

Brazil – In active mode entire week itself in contrast with other origins, stock position is at a positive note due to  present new crop position with trading price supported at level $3800 FOB having seen a noticeable good  demands from South Asia, Vietnam, and specially Europe of which seen buying in splurge trying to get their orders as prompt as possible before MAPA ordinance starts.

Strong demand last week and Vietnam’s current position are both likely to influence Brazil pricing this week.

MAPA Brasilia Ordinance 396, published on September 21, 2021, the ordinance aside from pepper will also cover other products from Brazil origin such as nuts, grapes, mangoes, etc. beginning November 01, 2021. As initially reported, new ordinance main objective is to control and monitor residues and contaminants of export products from Brazil to Europe countries that will provide a corresponding sanction to exporters reaching a certain maximum number of alert notifications. Though the provision is said to be made legal and binding, execution on how to  implement remains to be seen in coming weeks.

Heading to the last quarter of the year and market is looking as though it will be more stronger in the near  term with an expected flagged gain in pricing levels than what we are seeing now. That leaves our last thread of hope for ocean freight cost to subsides in atleast a supportive level to sustain inflating raw material prices going forward.

© Royal Golden 2021. All Rights Reserved.

RGT Pepper Market Report Week 38

Vietnam Pepper Market continue to hold its staying power with raw material being seen stable at level 81000 VND/kg 5-day straight, went into a break during weekend then bouncing back strong opening today. 

As usual, reported shortage in raw material offers seems to generate significant influence in the current market standing exhibiting a bullish trend as we head to the remainder of the year with September month averaging to 80,025 VND/kg that is higher of about 2.4% compared to last month trading average. Despite reported reluctancy of some shippers last week to cover their requirements, few big exporters were seen actively bidding and buying out. 

 Indonesia with harvest season in full swing, sellers offer nowadays are seen at level $4225 FOB with an interest to sell their stock position. Though noted with a minimal decline of about 1.17% in pricing today, it is still quite high compared to other origins not to mention the freight cost that are still very high. 

MAPA Brasilia Regulation Update. To this date the new ordinance that was supposedly to be imposed have not yet been published so far. As expected, Pepper Producer Association in Brazil and some major entities joined forced requesting to put off further proceedings of either indefinitely delaying it for at least a year allotting enough adjustment time for Brazil Exporters in strategizing their action plan. Furthermore, raising their main concern that sudden implementation could greatly impact all active unshipped booked contracts in Europe with Brazil Export that is currently hugely affected with current shipping crisis.  Shipping hurdles increase as September month availability remains overbooked stirring major concern worldwide. 

Top Carriers Plan to Freeze Spot Rates. Following CMA CGM announcement to put a freeze in increasing spot rates, last week Hapag Lloyd and Maersk joined the pledged. However, clear information of how it will be forced remains to be seen in following months as up to this point pressure on capacity remains very tight that is expected to worsen further in upcoming Golden Week Blank Sailing. 

What to Expect with Chinese Golden Week? The Golden Week in China begins by around first week of October. This event is well-known both in in logistics and supply chain every year as it unavoidably affects all shipments concern. If September bookings is pictured out as a bottleneck nowadays in Asia-Pacific, this year’s Golden Week will be catastrophic adding up to the number of consequences in ocean freight and inland transportation across multiple trades and regions. According to some experts most affected regions pre and post Chinese Golden Week this year will be: 1) North America, 2) Asia Pacific & 3) Northern Europe. 

General Note: Nowadays, the high pepper prices and extremely high freight cost are making buyers wait and suppliers delay shipments, hence, causing supply gap to widen further which may result a sudden heavy demand at some point in time between current and new crop.

Rising cost of raw materials is becoming it more harder to secure offer and fixed commodity price from sellers. Grasping the implication that we are now heading to the last quarter of the year; market positioning appears to be headstrong and will be difficult to bring down now despite the ongoing freight crisis.

© Royal Golden 2021. All Rights Reserved.

BRAZIL PEPPER UPDATE FOR THE WEEK 37

Brazil export volume for August month this year have reached an approximate 4,165 tons, higher of about 15% from last month volume export but down of about 40% from last year same month volume.
For the first eight (8) months, Brazil was able to export a total of 55,730 tons estimate.
Although volume exported is lower of about 11% from last year same period recorded, the export FOB sales have advanced at about 19% in contrast from last year same period turnover while about 30% higher FOB value average per ton in record.

A week market recap with good demands keeping its standing in market still firm.
Last traded was at level $3950-4000 FOB still considered competitive level as compared to its other origins which are notably higher of about $100-150/ton.
Though freight is worsening at this region, certain destinations are still considered a cheaper alternative as compared from Asian load ports.

Extract from RGT Pepper Market report week 37

RGT Pepper Market Report Week 37/ 2021 © Royal Golden 2021. All Rights Reserved.

Vietnam Pepper Prices to hit new high

 

With approximately 200,000 mts exported in the first 8 months with the help of 25000 mts imports from other origins including rejections from customers, the largest producer amidst covid lock down, is set to establish new high domestic Prices in the coming days.
With a lower crop compared to previous year and a huge carryover stock on paper, many Importers delayed coverage for the third and last quarter and we’re resorting to hand to mouth buying.
Many buyers could not digest the record high freight rates and were delaying purchases are now ready to bite the bullet with the peak domestic price and weekly increasing Ocean Freight.
With rumors of Brazil banning its pepper exports to European union with continued heavy rejections the entire world has only two sources :Vietnam  where we are already feeling the squeeze for raw material and Indonesia hardly left with 15 days of Vietnam exports.
Mostly traded vietnam 500 gl MC trading above USD 4000 FOB and 4150 for 570 gl Asta by buyers who buy on a monthly basis in the coming days we will see record high prices as inventories with exporters exhausted fulfilling new orders without replacement due to lock down.

Stay Covered till new crop 2022 which is already reported smaller than 2021 Crop .

Best Regards
Jojan Malayil 

Bafna Enterprises/India

United Spice Co Ltd/ Vietnam http://unispicevn.com/

RGT Pepper Market Report Week 36/ 2021

 

Vietnam Pepper September first week demonstrated yet again a firmer market with raw material being traded at 78000 VND/kg advancing by mid-week at 79000-79500 VND/kg a notable 2.58% surge in just a week. 

Ending week 35, demand from White Pepper producers elevated influencing market to boost opening week 36 today at 80000 VND/kg. While shippers refused to participate, White producers are still very active until now.

First week month comparison from August to September starting off, latter displayed an increase of about 3.48% in pricing level despite the ongoing struggle in raw supply movements. Any slight pressure in demand keeps provoking prices to spike higher.

Indonesia still into a good trend at about $4250 FOB for Lampung despite a lack of demand. Muntok White remains at ease level of $6700-6800 FOB without pressure from shipper’s side. 

Brazil Ministry of Agriculture (MAPA) new ordinance to be published for Pepper products bound to European Union appearing to shake up Brazilian exporters. The challenging new set up to cater European Market is now dreaded to continue to show a diminishing impact in export volume since Salmonella issue came up last 2019.

Another commotion nowadays is centered to the worsening freight situation at Brazil Port most specifically from Vitoria Port of which space and container availabilities are seen very tight. 

With this in mind, some sellers were seen hesitant to accommodate buying interest in fear of backlash at a later stage in case situation will not ease down.

Ocean Freight Rate remain at historical high levels and are likely to skyrocket further by Q4. Selected carriers have already implemented GRI’s for September. Space and containers availability for USA is very tight. From Brazil, shortage of vessel carriers continues to create a huge impact in freight booking

It is difficult to predict exactly when a bull market will end as despite inevitable small dips, a slight movement has never failed to make pepper rise specially nowadays where tight supply in materials is obvious

RGT Pepper Market Report Week 36/ 2021 © Royal Golden 2021. All Rights Reserved.