Indonesian demand sparks hike in cloves

The Public Ledger

Monday January 14 2008


INTERNATIONAL cloves prices have shown sharp increases over these early stages of the new year, fuelled largely by strong domestic demand in Indonesia and heightened speculation.

In the week ending January 11, European traders quoted Indonesian cloves at $6,200 a tonne c&f Singapore, compared with $4,100 a tonne in the week ending December 21. Over the same period Madagascan cloves were said to have reached $5,000 a tonne cif against $4,450 a tonne previously.

One Bangalore trader told The Public Ledger that Indonesia's major cigarette companies Gudang Garam and Samporena were purchasing cloves at higher market prices in order to cover local demand. Also, according to the same trader, local prices in Indonesia were as high as Rp60,000 per kg, equating to $6,200 a tonne fob Surbaya. Moreover, the trader added that his company had purchased Indonesian cloves at $5,700 to $5,800 a tonne in the last few days.

The Bangalore trader viewed Madagascan cloves as being quoted higher than the indications from European traders, citing instances of offers at $5,500 a tonne fob Tamatave.

Emmanuel Nee of French trader Sivanil agreed that strong domestic buying by Indonesian cigarette companies was pushing up prices. In addition, some Indonesian speculators were sitting on stocks. "Each time they receive a single demand they push the price up by $100 [a tonne], " he said. The weakness of the US dollar was also lending support to prices.

Mr Nee explained that the week to January 11 had been paticularly active, helping to push prices up to the latest highs and attain the peaks that Indian traders had projected.

"Although they (Indian traders) have not been exaggerating the trend, they were very early in their predictions, "Mr Nee observed. "Today they are not really buying at this level but they want to tell everyone the market is moving up and will keep on doing so because this will help the domestic market to awaken. Indian buyers are enquiring a lot, asking for small shipments here and there, but they are not buying huge quantities at this level." In addition, Mr Nee claimed that those who use cloves for cooking applications tend to limit their offtake when prices are high.Moreover, he viewed the latest surge in prices as driven solely by speculation. "The speculation is done on the fact that Indonesia has been buying a lot so the available stocks in Indonesia are not a lot and the next crop will not be as good as they expect. If that is the case Indonesia will come to the market and buy again, " Mr Nee said.

Moreover, if the forthcoming Indonesian crop turns out to be very small, then domestic and world prices could see some further short-term increases, he noted.

Mr Nee commented further that Singapore traders were making only tentative offers but no actual deals were being made. "In the meantime, Madagascar shippers are not offering anything and Comoros is empty in cloves, " he said.

Claude Cuvillier of the French broker of the same name remarked: "It is difficult to find sellers in Madagascar."