Pepper exporters in Kochi are worried about getting delivery after October contract expiry due to limited stocks of the spice at warehouses of commodity exchanges, dealers said on Monday.
Some exporters are taking delivery earlier to avoid last-minute hitches, they said.
“I am suspicious about October deliveries, but I’ve taken a chance on the feeling that everything is going to be all right,” said an exporter in Kochi.
Pepper stock on National Commodity and Derivatives Exchange was around 3,670 tonnes as on Saturday, he said.
On National Multi-Commodity Exchange of India, the other major exchange for pepper trading, stocks are around 1,295 tonnes.
In such a situation, sellers could walk away opting to pay penalty instead of giving delivery, he said.
In case of default, the aggrieved party is entitled only to a penalty of 3 per cent based on spot price of the contract expiry date.
October contract’s expiry on NMCE is on 15th while on NCDEX it expires on 20th.
Sections of dealers, however, dismissed the concerns as exaggerated.
Pepper delivery from NCDEX topped 1,000 tonnes in the last few months without any default and the same trend is likely prevail this month also, a dealer said.
EXPORT DEMAND: Exporters in Kochi have committed about 2,000 tonnes of whole black and grounded pepper to US buyers for delivery in October-December, a dealer said.
Most of them have around 50 per cent of required stocks and need to cover the rest either from spot market or exchanges, he said.
Sellers in spot market are keeping away hoping price will move up due to tight supply, he said.
People having good financial strength are holding pepper in spot market and they will not be in a hurry to sell, said Jojan Malayil of Bafana Enterprises, a Kochi-based export firm.
Most exporters are turning to commodity exchanges due to lack of availability from spot markets, he said.
Price in commodity exchanges is also low compared with prevailing spot market rates, he said.
Near-month October contract on NCDEX was around Rs 12,650 per 100 kg at 4.20 pm on Monday compared with Rs 13,600 for same grade in spot markets, dealers said.
Pepper supply in spot market is quite limited as exporters are finding it difficult to buy even 2-3 tonnes on any given day, dealers said.
Fresh stock supply is available only by February after pepper harvest season in December-January, they said.
EXCESSIVE SPECULATION: Excessive speculation in pepper contracts needs urgent attention of market regulator, said an exporter.
October contract on NCDEX moved up nearly Rs 800 in the last week of September and then fell by Rs 1,000 in last two to three days, he said.
In such situation, exporters find it difficult to take positions as well as make commitments to overseas buyers, he said.
Pepper price in futures exchanges seldom follows the fundamentals of demand and supply, he said. Ideally, future and spot market prices should converge at the nearing of contract expiry but here both are moving in opposite directions, said a dealer.
Pepper futures platform at national exchanges have failed to function as a safe price discovery and hedging mechanism, said Malayil.
“They are functioning more like online legal casinos,” he said.
FALL IN EXPORTS: Concerns over getting delivery after contract expiry and tight supply in spot market is taking place at a time when exports have showed a downward trend in first five months of 2008-09 (April-March), dealers said.
Pepper exports fell 28 per cent to 11,250 tonnes in April-August compared with a year ago, they said.
Export earning in April-August came down to Rs 1.90 billion from Rs 2.26 billon in the corresponding period a year ago, they said.
If current scenario persists, Spices Board may not achieve its pepper export target of 35,000 tonnes during the year, dealers said.
In first five months, only 32 per cent of the target was achieved and it will be tough to cover the rest in remaining months, they said.
Pepper contributed around 9 per cent of India’s total spices export earning of Rs 44.42 billon during 2007-08 (April-March).
