By Maytaal Angel
LONDON (Reuters) – Traders are planning to deliver thousands of tonnes of robusta coffee from Asia to the ICE futures exchange in Europe for the first time in more than three years – a move likely to take the heat out of benchmark coffee prices that are near 10-year peaks.
The coffee was bought after local prices in the Asian region slumped and global shipping logjams eased.
ICE, which runs futures and equities exchanges worldwide, functions in part as a market of last resort for excess coffee, so any sign the relentless drawdown in its stockpiles is ending could lessen investor worries over supplies, prompting them to sell.
Traders shipped at least 18,000 tonnes of robusta coffee – equal to more than a fifth of current ICE exchange stocks – from Vietnam and Indonesia in January, much of it destined for exchange-approved warehouses in Antwerp, Amsterdam and London, five sources at top global trade houses told Reuters.
Vietnam is the world’s top producer of robusta coffee but exchange stocks are currently dominated by supplies from number two robusta producer Brazil.
Indonesia is the third largest robusta producer.
Trade houses including Ecom, Sucafina and Louis Dreyfus are shipping the beans at relatively low freight rates because they are using carriers known as breakbulk to export the coffee, the trade sources said, something that has not been seen for 25 years.
Sucafina confirmed it was shipping robusta from Vietnam in breakbulk vessels. Louis Dreyfus declined to comment. Ecom was not immediately available to comment.
The trade houses bought the coffee after Vietnamese and Indonesian dealers – desperate to shift stock built up over two years of shipping logjams – offered beans at record high discounts to the benchmark ICE robusta futures price, the sources said.
Coffee is normally shipped on container vessels but rates have soared due to a shortage of available capacity brought on by restrictions to combat the coronavirus pandemic.
The restrictions disrupted labour supply and caused a surge in demand for retail goods from consumers stuck at home.
Traders said it has become cheaper to pile up bags of coffee in breakbulk vessels, which are commonly used for goods that cannot fit into standard-size containers.
The vessels haven’t been used to ship coffee for years because they require traders to ship very large cargoes and because of risks that bean quality could suffer if it rains while bags are loaded and unloaded at port.
GAME CHANGER
“Breakbulk is potentially a game changer. We’re only tight because the coffee is in the wrong place,” said a Swiss-based coffee trader at a global trade house.
Breakbulk shipping rates fell earlier this year to as low as half that of container rates on the south-east Asia to Europe route, he said.
That, coupled with the record high discounts prompted traders to snap up the coffee because they knew they would at least break-even if they delivered it to the exchange, and hit a profit if they sold it to roasters.
Delivering robusta from Vietnam and Indonesia to the exchange has not been a break-even trade for years.
ICE stocks data shows no significant deliveries of robusta from Vietnam since late 2018, and none from Indonesia in more than four years.
Later this month however, commodity trader Ecom plans to deliver 5,000 tonnes of Indonesian origin robusta to the exchange, according to a source with knowledge of the matter who was not authorised to speak to Reuters.
That delivery is the minimum that will land at the exchange from Indonesia and Vietnam over the next month, traders said, with the true figure likely double that and expected to pick up going forward.
At least three more breakbulk vessels are due to leave Vietnam later this month with robusta coffee that was bought at a discount to ICE futures, according to a senior, Swiss-based trader at a global trade house.
“We see robusta prices averaging $1,950 a tonne in the second quarter (versus around $2,240 at present) assisted by large crops in Vietnam and Brazil and the facility to ship in bulk from a few routes,” said Rabobank analyst Carlos Mera.
(Reporting by Maytaal Angel. Editing by Nigel Hunt and David Evans)
