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Liffe’s decision hoped to fan a new breath of air to Vietnam’s coffee industry
Vietnam has become the first production country which Liffe (the London International Financial Futures and Options Exchange) allows setting up a storehouse and send samples to London to have quality tested at its center.
On September 20, Peter Blogg, head of the coffee division of Liffe, which is now put under the management of NYSE (New York Stock Exchange), released a notice that Liffe’s managers have allowed coffee buyers to send 1.5 kilos of product samples for every 10-ton consignment to London to have quality tested at Liffe’s quality testing center. The products which can meet the quality standards can be kept at a storehouse in HCM City for six months since the day the product samples are sent for testing.
The decision has been explained to aim to create favorable conditions for banks to make payments for Vietnam’s coffee before handling deliveries aboard.
A new breath of air
This proves to be unprecedented decision made by NYSE Liffe’s managers who understand well the role of Vietnam in the world coffee market. Vietnam is a leading robusta coffee exporter in the world, with 1.2 million tons of coffee exported in the 2010-2011 crop. Vietnam is also a big supplier at Liffe.
in general, it takes a trader at least 45 days to get payment since the day of deliveries, and two months in general to make a deal. Therefore, the decision by Liffe will help those who want to sell coffee to Liffe to shorten the time of waiting for consignments to go from Vietnam to their storehouses in Europe and the US.
In fact, Liffe is not a stranger to Vietnamese coffee exporters. Liffe’s prices have been considered in the world as the benchmarks for robusta coffee products. The standard amount of each contract is 10 tonnes of robusta coffee per lot. If the exports have premium quality, the standard price for the products will be calculated by the standard price plus 30 USD per ton. The standard price will be applied to the first-class products, while the one-grade-lower class products will have the price lower by 30 dollars per ton.
Sicom (Singapore Commodity Exchange Ltd) once applied the method in Vietnam, but it has not really succeeded, maybe because of the weaker liquidity of the market in comparison with Liffe.
What will the new crop be like?
There has been no reaction of the market to the above said information. The 2011-2012 crop will begin on October 1, but the market remains surprisingly quiet. Meanwhile, by this time of previous years, exporters had signed the contracts on exporting at least 200,000 tons which would be delivered in the high season, mostly in December, January and February.
Reuters last week estimated that only 20,000-50,000 tons had been sold under forwards contracts.
The slow start of exporters can be explained by the fact that the robusta Liffe price has been fluctuating so heavily these days, which makes it very risky to sell now, when sellers still do not have goods in hands. Meanwhile, buyers only pays the price which is 100 dollars per ton below the Liffe standard price for 5 percent broken black coffee, which means that the price has dropped by 300 dollars per ton in comparison with the price of one month ago.
The big gap between the two prices has made sellers hesitate to make decision. Meanwhile, Vietnamese exporters still have to ponder on whether to sell at this moment, when the conditions on credit and bank interest rates remain unclear.
The buyers are mostly big importers from Europe, such as Switzerland, Germany, Italia, Spain and France. Meanwhile, they are also meeting big difficulties in accessing bank loans, because their governments now have to focus on dealing with the public debts. As such, it seems that both buyers and sellers have not got ready enough.
In the domestic market, the coffee price has been decreasing. On September 22, coffee beans were traded at 45.1 million dong per ton, a decrease of 1.5 million dong from the previous day.
vietnamnet, SGTT
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