Extending a losing streak of five straight months, pepper prices performed quiet surprisingly and lost almost 27 per cent during this period. News that FMC has started probing against the cartelisation on pepper induced more liquidation in the counter. Higher production estimates, quality concerns and subdued overseas demand moderated the well maintained bullish outlook for the prices.

The volatility seen in prices so far this year was somewhat unusual. Prices started this year at Rs 32,000 a quintal and slowly dragged down to Rs 29,500 by the mid-February but swiftly recovered and created an all-time high of Rs 45,700 in the NCDEX futures platform. However, after demonstrating multi-month consolidations, prices are now trading at Rs 33,500 a quintal in the futures market for February delivery contract.

Squaring up of short positions ahead of the staggered delivery supported the near-month contract prices while, far month contract edged down. Open interest in the near-month contracts are also showing contraction accordingly.

Rumour and after

There was a rumour that cartelisation was the motive for skyrocketing prices earlier. High price expectations tempted market participants to accumulate more positions. However, prices corrected its early gains and liquidated sharply after the Forward Market Commission launched an investigation against the unusual price movement.

The better crop expectation in the local and overseas market influenced prices. Liquidation of crops into the market before the new crop arrival weighed on the sentiments. Pepper harvesting will begin by mid-December month in Kerala and arrivals will gain pace in January.

Parity effect

Indian pepper production for last year fell to a multiyear low of 43,000 tonnes against an average annual production of 50,000-55,000 tonnes. Indian production for 2010-11 was 48,000 tonnes. Meanwhile, current year output is expected to increase to 55,000-60,000 tonnes. Pepper output in Vietnam this year decreased to around 1 lakh tonnes from 1.10 lakh tonnes in 2011.

High price parity between domestic and international market has capped the exports. According to sources, exporters are selling their positions in the domestic market due to this price discrepancy. Indian parity in the international market is now quoted around $7,500 a tonne while it was around $8,400-8,500/ tonne in August.

Meanwhile, Indian variety is still quoting higher prices than other varieties in the overseas market that has dented demand for Indian produce. Increased global production outlook and a volatile Indian rupee influenced prices as well.

According to International Pepper Community reports, during Jan-Oct 2012 Indian pepper export was around 15,700 tonnes as against 18,000 tonnes same period last year. India is estimated to have an export of around 1,000 tonnes in October compared to 2,500 tonnes in the same period last year. Anyhow, till the end of this year, India is expected to export almost 17,500 tonnes. During Jan-Oct 2012, the total export of pepper from Vietnam was 1,02,340 tonnes, registering a significant fall of 12 per cent compared with export of 1,15,780 tonnes in the same period last year. It is estimated that the export from Vietnam would be around 1.10 lakh tonnes this year.

Even though significant downside in the counter is expected due to weak fundamentals, a probable winter and festive demand are most likely to limit further downfall in the short-run. Looking ahead, Rs 33,000-30,000 levels may be expected but sell-off below the same may induce further weakness. Consistent trades above Rs 36,000 would be a signal to new bull run.

(The author is Whole Time Director, Geojit Comtrade Ltd. The views are personal)

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