July 16, 2023
TAMATAVE, Madagascar, 14 July 2023:-
The recent up & down swing in Clove price might have surprised many.
Not every one.
Clove has now become a complete industrial agri commodity. Even though its culinary uses everywhere increasing, but still, its consumption in the kitchen has a limit. Whereas industrial use is doubling up. It is not only Clove, but its various forms like Clove stem, Clove dust, Clove Oil, Clove leaf oil etc has very high industrial demand in the present day world.
A good % of global population use cigarettes; Smokers are not rare. But many smokers [and non-smokers also] may not be knowing the massive use of Clove in cigarettes. Of course, it is limited to Indonesia. Indonesian "Kretek" cigarettes [unfiltered cigarettes made of tobacco, clove and other flavours] uses more than 120,000 Mt clove every year - and thereby the world's biggest user of Clove.
Indian requirement - which is the single 2nd largest consumer in the world - after Indonesia - is yearly 26,000 Mt. See the difference of quantity consumed between the 1st biggest consumer and 2nd biggest consumer ! There is no other single country in this world consuming so much quantity of Clove.
Because of this, India and Indonesia are the two strong destinations who decide Clove price. Among this, Indonesia's role in price fixing is limited, as Indonesia is the world's largest producer of Clove with almost 140,000 Mt annually. Therefore, Indonesian cigarette companies gets their full requirement indigeniously - well from within Indonesia. Thereby, usually, there was no need for Indonesia to import cloves.
However, recently in last 2 years, scenario changed. Indonesian clove production declined, and it is reported last two years, its production was below 100,000 Mt, thereby making the cigarette companies to import clove from either Brazil or Africa. And in 2022 and 2023, again clove production declined in Indonesia, and it became inevitable for Indonesia to import around 25,000 Mt clove from Africa and Brazil. And it is reported from Indonesia that during 2023-2024, Indonesia cigarette companies might be forced to import 30,000 to 40,000 Mt for their use.
During 2022 and early 2023, reports from Singapore Traders reveals that Indonesia imported full quantity of Clove from Zanzibar, and 40% of Comoros Clove, and more than 5000 Mt from Madagascar as well; and many traders in Singapore even now carrying stock with them on the hope of import by cigarette companies. The recent upside price movement in African origins and Indian market as well as Dubai market substantiate this reports, and the demand of Indonesia. In Madagascar, the local sale price moved from Ariary 30,000 per kg to Ariary 33,000 and then to 36,000 and further jumped to 38,000, and even people firmly asking for Ariary 40,000 per kg. This uptrend was followed in India also, where local whole sale market moved from INR 750 a Kg to 820 a kg and then to 860 a kg and finally reached INR 980 a Kg. Retail market [in grocery shops and super markets] in India jumped to even INR 2000 per kg ! In Dubai market, local whole sale marked moved from AED 33 to 36-38 level a kg. International market, which was around USD 8300 per MT on CNF basis, moved to USD 9800 per MT and crossed USD 10,000 also. Indonesia at a time quoted to the export market USD 10,400 also. But price above USD 10,000 could not sustain, and it dipped. On an average, one can see, international price was stable at around USD 9500 to USD 9800 per Mt.
However, in July 2023, surprising the whole market, the price line took a downside U Turn ! The cigarette companies in Indonesia stopped their purchase, and news came out that cigarette companies have enough stock in their custody for next six months consumption; and they are not in a hurry to import at higher price levels. Based on this news, Singapore traders, who were holding stock for the cigarette companies demand, started selling off their stock to Indian market, and they sold to Mumbai Vashi market even at USD 9600--9650 per MT, when international market was at a level of USD 9800 per MT !! Similar reduced offers were given to Dubai market as well. This reduced price offer by singapore traders to India created a panic in local Indian market also. In Indian local market, price dipped by INR 80 to 120 on a Kg. Dubai market witnessed dip of AED 1 to 1.5 on a kg. And whole sale market - from Indonesia offers came down to USD 9300 and USD 9000 also [but only one or two isolated offer at 9000 level] Madagascar offered USD 8900 -8800 on the down side; but in Madagascar majority of sellers kept away from the market. This was because of resistance from Farmers and Collectors in selling their stock to exporters. Both farmers and collectors/ stockists after tasting the higher price level, were holding back to demanding those higher levels and availability in the terminal market was low.
What could be possibilities in the new harvest season in 2023 ? All origins - Africa and Indonesia - crop is delayed. Comoros - the first harvest to come from Africa, normally in July, is delayed and now expected only by mid August. In Indonesia, July-August harvest is reported only half of normal harvest. Reports from farmers in growing islands says, many clove trees have no flower or buds, and no crop possible from such trees, thereby reducing total harvest quantity. Zanzibar is another African origin. As Zanzibar is monopoly by Govt Trading Corporation, and private exporters are not allowed there, we need to depend on Govt reports only. Like in 2022-2023 happened, this year - 2023-2024 also, Zanzibar State Trading Corporation is looking to make contract with single party for its whole quantity ! thereby restricting other buyers to enter. [In 2022-2023, Zanzibar Corporation sold its full quantity to a single trader from Singapore in one shot through a single sales contract.] From these, what we could derive ? what we could read for future? What would be guiding lines for the future market ?
Yes of course, as in the case of any industrial commodity, Clove also follows both fundamental and technical market equations. Clove price is also judged from both fundamental and technical factors. These days, some technicial factors influence fundamental factors !! That is the worst scenario in Clove, because of its limited sources, but massive spread consumer market. Fundamental factors are normal economic indicators - supply and demand is the prime; and FOREX is the second; Mind set of buyers and consumers and/or Sentiments of importers and consumers are also becoming fundamental factors as mind set and sentiments determine demand. What are technical factors influencing the market? - Market making, Speculation and Cycle Trading - which is manipulated factors and man created factors. It becomes technical as it directs Price Curve. When you look at Price chart, you can see price movements, zig-zags all goes with man made market making and speculative purchase and sale and stock holding coupled with cycle trading.
Fundamentally, during harvest season price has to come down. Openings must happen at lower levels. No doubt about it. How far lower possible to open - that is the only question to look for answer !. Will it go down as low as in previous years harvest period ? or will it remain in mid point considering the speculative demand ?
My personal view is that, only a traders perspective, no claim on guarantee, Clove price has to come down in August, September, October months. All harvesting origin may open lower only. Might be possible to open in and around USD 7000 or bit lower. We could have a more firm view on price opening during second half of August 2023. We need to wait and see that time.
Singapore has good carry over stock now. In India also sufficient carry over stock remains in the hands of many traders and stockists. There is no shortage of crop in the market. In Dubai also more than 400 Mt stock available. In MAdagascar, old stock is available plenty. If one not looks at color of the stock, then enough quantity is available in Madagascar. However, when new crop comes to the market, definitely traders would book new crop quantity. Fundamentally, price would come down only. Market making and speculative activities can hold the market temporarily upside for a short period. I do not think, like in Steel industry, or in Sugar industry - in Clove industry, there is no that much money muscle power people to carry on the market on higher side for a longer period. Therefore, fundamental factors must rule over speculative technical factors, and market would come down to real market terms.
Let us wait for second half August 2023 to have more news and see market vibrants in more detail. Till then, I wish all my followers and readers and good time of trading, and healthy reading of the market. For any personalised advice, please free to reach me email gkumarks@gmail.com
GIRISH KUMAR K S
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