Asia Coffee-Vietnam domestic prices rebound; Fed rate hike seen capping gains

HANOI/BANDAR LAMPUNG: Vietnam's domestic coffee prices bounced back on Thursday after falling to a three-month low at the beginning of this week, but traders said the U.S. Federal Reserve's rate hike overnight may keep prices from rising further.

Farmers in the Southeast Asian country sold coffee at 32,600-33,500 dong per kg, up from 31,600-32,400 dong on Monday, and compared with 33,500 dong a week earlier.

"The rebound is seen as a correction after prices hit the lowest level in months earlier this week," a trader based in Dak Lak province said.

Vietnam, the world largest robusta producer, is in the middle of the 2018-19 harvest, where local farmers have picked nearly 85 percent of the new beans. Traders said the harvest is expected to end mid-January.

Local traders and an analyst said the rise in prices, however, will likely be capped by the Fed's rate hike overnight and the ample supplies from the harvest.

"The Fed rate hike may put a brake on an export price recovery, as a stronger greenback will encourage more shipments," the analyst said, adding that this will ultimately impact the recovery in domestic prices as well.

Traders in Vietnam offered the 5 percent black and broken grade 2 robusta at a $40-$50 per tonne discount to the March contract, narrowing from $80-$85 last week.

March robusta coffee closed up $7, or 0.5 percent, at $1,494 a tonne on Wednesday.

In Indonesia, premiums for the grade 4 defect 80 robusta were at a premium of $20-$30 to the March contract, unchanged from last week, a trader in the province of Lampung said.

"Trades were nonexistent this week due to low supply and many exporters have left for holiday breaks," the trader said.

"This condition may continue until mid-January," he added.