Liquidity Problems

There is an increasing liquidity problem in the Ethiopian banking sector; it has been reported that construction companies are facing real constraints in sourcing financing for infrastructure and other projects; some exporters with commitments to overseas buyers also report that they are facing financing restrictions to acquire coffee to fulfil their contracts; rumours of defaults and delays for this and other reasons continue to circulate in Addis.

Having been quiet on the topic for the last few weeks, yesterday the Coffee and Tea Authority circulated a Minimum Price Control table based on average NBE registration prices; this resulted in some contracts not getting registered at NBE yesterday; we are unsure how in the coming days and weeks this policy will be implemented but it is hard to see how the regulator will be able to ignore supply and demand in the middle to longer term. Interesting to note that yesterday’s Minimum Price List had Sidamo 4 lower than Lekempti 4 and Lekempti 5 lower than Djimmah 5, where is the logic?

At the ECX this week we started to see much more volume of Djimmah and Lekempti, in particular; the increased supply resulted in lower prices and exporter offers have started to reflect this. However, offers will have to come off more to attract business in any serious volume.

The Birr continues to devalue at a steady rate, however, the daily depreciation during February is around 0.03% which is a very restricted pace, equating to +/- 10% per annum; Late 2019, in November and December, the daily depreciation rate was much higher, resulting in the birr depreciating 8% in the 2 months.

Weather continues to be normal and favouring crop development and processing.

by Charles Seara Cardoso

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Delays, Defaults and Poor Quality

Delays, defaults and poor quality, all these issues have started manifesting themselves recently; the low volumes flowing from interior to ECX are hampering usual activity. Other than in the South we are not expecting a lower volume this year however the normal flow continues to be restricted. Sales activity is also limited as prices asked by shippers remain very far apart from overseas buying levels. In addition Terminal market volatility only confuses the issue. Some shippers expressed their doubts that this year’s election would indeed take place during August as announced. On the bright side, things can only get better!

Table below shows the sales at ECX of the Main Natural qualities:

MT @ 20 Feb201820192020Δ 20 – 19Δ %
Sidamo           1,344           3,620           1,158–       2,462-68.01%
Lekempti           2,321           3,565           1,198–       2,367-66.40%
Djimmah           6,286           5,074           5,553            4799.44%
Total           9,951         12,259           7,909–       4,350-35.48%

Djimmah is up by nearly 500 MT reflecting the good crop is that region this year, whereas Lekempti is sharply down as a consequence of the insecurity situation and Sidamo, likewise down, reflecting the lower crop and increased vertical integration which will take coffee away from the exchange.

Birr continues its very slow devaluation vs the greenback, the currency has devalued less than 0.5% in the last 3 weeks.

Weather continues to favour cherry and parchment drying.

by Charles Seara Cardoso

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AFCA

With many exporters at AFCA this week it gives us an opportunity to catch up and discuss the current situation in Ethiopia; the picture is not very pretty for both Washed coffees and Naturals for different reasons; Volumes for Washed at ECX continue to disappoint and increasingly the reason being given is that a chunky proportion of Sidamo/Guji and Yrgacheffe coffee is already committed to exporters through Vertical Integration arrangements.

We also believe that the crop in the South is both late and down vs 2018 crop. For Naturals the Lekempti insecurity situation is ongoing and this continues to limit the volumes offered at ECX; there are also concerns that the Lekempti crop is not being dried properly since farmers are not being able to go about their business due to fear caused by rebel fighters in the region; potentially this could lead to more mouldy beans, phenolic cups, and even OTA issues; as we understand it there are talks between the Government and rebel fighters to try to stop the attacks on the local population.

Overall ECX volumes at ECX are down from  31 K MT in 2019 to 26 K MT this year, mostly Washed coffee from the South, which is down by over 7 K MT:

Prices remain high although we are seeing some signs that they may reduce, particularly if volumes increase in the coming weeks. Shippers are reluctant to offer aggressively wanting to see ECX price evolution confirm the downward trend.

Weather remains favourable for drying cherries and the little parchment still requiring drying.

by Charles Seara Cardoso

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LEKEMPTI

FOB offers have not changed in the last 2 weeks however the terminal market has lost 15 cents, making new business with origin very difficult; All New Crop offers even for the lower Natural qualities are now offered equivalent at plus double-digit differentials, whereas interest is some 30 cents away! Volumes at ECX continue to disappoint; Lekempti coffee is nearly non-existent, pls see below:

We believe that the insecurity in the Lekempti region is the main reason for the current lack of flow of Lekempti coffee through the ECX.

With business from origin limited to Plus Qualities and natural volumes at ECX expected to increase at ECX to over 60,000 MT by the end of April something as got to give…

The Addis Coffee meeting is ongoing these days if something new and relevant is announced we shall report.

Hopefully we see some of our coffee friends in Mombasa next week.

by Charles Seara Cardoso

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