Rising Vietnam robusta premiums boost demand for exchange stocks

LONDON/HANOI - Vietnamese robusta coffee premiums look set to rise further due to a worsening drought in the world's top grower, boosting incentives to draw down ageing exchange certified stocks, traders said on Friday.

The country's Central Highlands main coffee belt is facing the worst drought in 30 years, heaping pressure on its limited supply.

Premiums of robusta grade 2, 5 percent black and broken, rose to $50-60 a tonne to ICE July futures this week, from premiums of $40-50 a tonne last week, due to tight supply, traders said.

They added that Vietnamese cash premiums could advance further in coming weeks on the tight supply outlook if dry weather persisted, but any rally in robusta futures driven by the more liquid arabica market could drag on cash premiums.

"With the worsening drought now, premiums will likely rise further," said Phan Hung Anh, deputy director of export firm Anh Minh in Daklak.

"If prices stay at this high level, farmers will definitely sell. Otherwise, stockpiling is unavoidable."

Traders said continuing high Vietnamese cash premiums would boost the appeal of drawing down certified stocks in ICE-approved warehouses, some of which were subject to age penalties making them cheaper.

Stocks held in ICE-approved warehouses fell to 173,850 tonnes as of March 30, down from 197,580 tonnes as of Dec. 30.

A European trader said it was cheaper to acquire coffee from exchange certified warehouses than from the producing country.

"Origin supplies are more expensive than certified. Certified will continue to be drawn down," the trader said.

Another European trader said: "Premiums are likely to continue high unless the flat price (futures price) can rally and offset some of the tightness in origin."

Arabica coffee futures hit a 5-1/2 month high of $1.3820 per lb on March 23, buoyed by a strengthening Brazilian real currency, dragging up robusta.

Robusta futures hit a 3-1/2-month peak of $1,545 per tonne on Friday.

A stronger real reduces incentives for producer selling as it erodes local currency returns from sales of dollar-denominated arabica coffee. 

Khoa Le

Source: Agweek