Clove leaf oil prices look set to remain quite firm as the sector is closely correlated to developments in the clove bud market, French trader Touton noted in a report released on Tuesday.
A very quick overview of the clove bud market shows that despite current rumours of declining levels, the very fundamentals of the market, at least for the coming five to six months, are quite bullish as Zanzibar, Comoros and Brazil have nothing to offer at all, Touton explained.
The company observed that Sri Lanka has limited offers remaining as a possible 30% of the crop there has been destroyed by flooding and the quality offered cannot suit all markets needs.
Indonesia’s new crop is most likely an average one and so far major domestic users having not yet started to buy.
The Madagascar season is over and stocks of 1,000 tonnes at most are in strong hands.
Moreover, world stocks levels are very low.
As a result, once people realise that here are only 1,000 tonnes available in Madagascar to cover all markets needs, including that of the two main consuming countries until July or so then the market could wake up quickly, the report suggested.
In Madagascar, the producing area has received quite a lot of rain showers in recent months and this will not make for an easy restart of distillation or assist the delivery of crude oil from bush alembics to collection centres and from collecting centres to Tamatave for final packing and export.
However, the rainy season should come to an end soon and the weather is forecast to become drier again.
On the other hand, having traded cloves at quite high levels since November 2014, the bush collectors have had sufficient income not to rush into the clove leaf oil campaign and they can easily wait for better times to start working again, Touton cautioned.
Distillation is said to be slowly starting again in some areas, which is good news at least for availability of the oil.
However, in contrast to this positive sign for supply, some bush collectors are forecasting that a very good clove crop will arrive at the end of the year, and it is felt that this might affect the cutting of small new branches or leaves for distillation “rather quickly” should this rumour be confirmed between now and June.
“Madagascar farmers will always prefer protecting cloves better than distillating clove leaf oil, which in any case must already be done based on regulatory obligations in the Analanjirofo area,” Touton added.
On the demand side, competition is very strong – and could even increase in the near future – on the domestic market and this definitely pushes prices up, Touton noted.
The company revealed that the first quotes it has are slightly higher than the prices it paid recently in euro terms “which is not that encouraging”.
Bush prices are up by 5 to 6% and based on present currency movements, Touton expects to be able to quote in the area of EUR12.60 (USD 13.57) per kilo fob.
The company cautioned that these prices are obviously only indications and everyone hopes to be able to get better supply conditions within a few weeks.
In addition, the various market parameters as detailed have to be taken into account, and this includes currency movements.