JUST GOT THE REPORT BELOW PRODUCED BY ROYAL GOLDEN CO
FOUND IT VERY SERIOUS AND USEFULL THEREFORE WE ARE POSTING IT FOR YOUR INFORMATION
Author: Parsram Dhirani
A few months ago, we have heard vague news of lower output of Indonesian cloves which have now turned into a reality.
It resulted a spike in prices by 20-30% in a span of 2 weeks.
Indonesia experiencing one of the bad crop seasons due to excessive rains for the last several months (up until now).
Small islands are reporting crop size as low as 25%, while the arrival at big island is negligibleand several news of 50-60% crop damaged at big and major cloves producing islands.
Jawa Island normally has its crops in May - July, however, this year, there has been no report of new cloves in the producing regions. Even though cloves from Jawa are mainly for the consumption of cigarette companies, bad output from Jawa adds more pressure to the cigarette companies to buy whatever cloves are available in the market, including the Lal Pari cloves which are usually for export.
Realizing this dreadful fact of lower output, large and medium kretek companies introduced a high opening prices to procure material as much as possible.
However, traders and farmers who are very aware of the situation declined to supply at their asking levels.
This made factories increase their prices more.
Many farmers and holders prefer to hold for better prices in coming time.
India which is the second biggest consumer of cloves is facing extreme difficulty in finding replacement at lower levels.
Hence, prices at spot market are rising on daily basis.
Three to five months more of supply vacuum at destination markets such as India and elsewhere may result more hike in spot prices.
Crop of 3000-4000 tons from Comoros Island shall start in the month of July.
According to sources, Chinese who sold their excess stock from China to
Indonesia and Singapore are now very active in Comoros market to procure as
much as possible in the beginning of the season.
Zanzibar produces 4000 tons, and we may see similar number this year as well
in July. We do not have more information except some issues on quality of
cloves last year and those disputes remain unresolved .
A very small remaining quantity of Brazil cloves is being offered in the range of
8500-9000. Their new crop shall start in November/December.
Sri Lanka is at end of their crop and has quickly adjusted their prices with the
international levels.
Madagascar may bring some relief in supply (not necessarily in prices) when
they harvest their new crop in the month of September/October. At this stage,
crop is expected to be decent.
Observation & Analysis
*There is no major source of supply of cloves till Sept/Oct.
*Spot prices at destination markets or centers may rise further till lower prices cargo arrives.
*Other less consuming markets seem to be very active as well.
*Speculative activity is also pushing prices to some extent.
*However, this time, it is more of an economic theory of supply and demand that is playing its
role to bring prices at equilibrium levels.
*In 2011, due to lower production in Indonesia, market touched historically high and Indonesia bought cloves from many parts of the world.
2021 crop is substantially and sharply down as well.
Can 2011 situation repeat itself in 2021?
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