LONDON: A weak rupiah currency and a larger crop are boosting Indonesia robusta coffee shipments to Europe, alleviating short term supply tightness caused by Vietnamese producers hoarding.
Top producer Vietnam and third biggest grower Indonesia are the leading suppliers of robustas, mainly used for instant coffee, to the European market.
Robusta coffee bean exports from Indonesia's main coffee growing area in Sumatra rose 22.1 percent from a year earlier in June, and European traders said they expected the strong flow of shipments to continue through July.
"It's a combination of weaker internal currency and higher supply numbers, leading to a significant increase in exports," a senior European physical trader said.
Indonesia's rupiah is the second worst performing currency in emerging Asia so far this year, losing a further 7.18 percent against the dollar in early trading on Wednesday.
It will remain under pressure in the second half of this year because of Indonesia's current account deficit, a senior official at the finance ministry said.
Furthermore, an increase in the Indonesian total coffee harvest to around 11 million 60-kg bags in 2015/16, from some 8.5 million last season, has boosted export prospects.
The USDA has forecast Indonesian 2015/16 robusta production at 9.3 million bags and arabica output at 1.6 million bags.
European traders spoke of brisk offers of Indonesian new crop robusta coffee at $30/40 per tonne over September futures for July/August shipment, compared with $50/60 over for Vietnamese grade 2 beans.
The pickup in shipments of Indonesian robusta was expected to encourage Vietnamese holders to compete, alleviating Vietnamese hoarding on hopes that prices would rise.
With the Indonesian harvest now in full swing, and the next Vietnamese harvest due to start around November, pressure is building on Vietnamese holders to unload substantial old crop stocks.
"The Vietnamese will be starting to get worried, with the flat price so weak," a London-based dealer said, referring to ICE robusta futures prices which fell on Tuesday to the lowest level in more than one month.
"They are pretty stubborn.
They have been holding out for higher prices for the past six months," the trader added.
Hoarding began in Vietnam in late February after domestic prices fell below 40,000 dong ($1.85) per kg and contributed to short-term supply tightness and a large premium for the front month in robusta futures.
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