The international cashew market saw an unprecedented increase on a mainly speculative basis, during the first half of 2017. However, prices began to be revised downward from July, which should continue over the coming months because of a large supply, whereas demand seems to be collapsing.
As per the forecasts by Service N’Kalô, West African production saw a strong increase in 2017, and should exceed 1 700 000 tonnes.
In late August, Vietnamese ports received 878 000 t of raw coconut from West Africa, i.e. an increase of 300 000 t from the same period last year. India, whose Customs statistics are only available up to the end of July, had for its part received 280 000 t of West African cashews, down 15 000 t from the same period the previous year. Finally, Brazil, a minor cashew importer, saw its raw African nut imports climb to 22 000 t over the first eight months of 2017, as opposed to 10 000 t of imports over the whole of 2016.
At the same time, total exports for cashew kernels (hulled cashew) from the three main processing countries remained practically the same to the previous year, with a very slight fall from Vietnam (- 0.7 %), a steep fall from Brazil (- 30 %) and a distinct increase from India (+ 10 %).
So despite the supply tending to exceed demand in early 2017, raw nut prices soared during the marketing campaign which closed in Africa in July. Field-side prices exceeded 800 FCFA/kg across West Africa, with peaks of as much as 1 100 FCFA/kg in Guinea-Bissau and Senegal, where the sub-region’s best quality can be found. Export prices fluctuated between 1 700 and 2 200 USD/t fob Africa, depending on the origins and qualities.
These price levels, never seen in the history of the cashew industry, are completely paradoxical in a context of supply growth in the main producer countries, and stagnation in demand in consumer countries. This situation can largely be explained by Vietnam’s industrial processing surplus capacity. Thanks to an improvement in automated processing technologies, highly competitive labour and attractive investment conditions due to the Vietnamese government’s sectoral policies, this sector has seen a boom over the past ten years in Vietnam. In 2016, it overtook India, the historic number one, in terms of capacity and processing volume. While constantly growing in number and capacity, Vietnamese processors have reacted with panic in reducing their local production in 2017 (approximately - 150 000 t of raw cashew), and launched unprecedented waves of orders in West Africa in order to ensure a minimum of activity over the whole year. So a speculative micro-bubble phenomenon was established in the world’s number one processing country, to the delight of African producers, but which threatens the entire market with great instability over the coming months.
The market is currently in a dangerous situation. There are enormous raw stocks still available in Asia, which have been purchased at very high prices by importers and local processors. At the same time, the stagnation in demand (curbed by high prices) and the caution of Western importers caused prices for the processed product to start to fall.
If this movement continues, the factories which have accumulated the biggest stocks could return to working at a loss, and if the sector becomes panicked, a steep fall in prices could occur over the coming months. The Vietnamese national association for cashew nut processors (VINACAS) is currently trying to limit the fall by encouraging its members to keep cashew kernel sale prices high, though competition from Indian processors could in the medium term overcome this rather late attempt at self-regulation. So the coming months will be worth keeping an eye on.
Source: Service N’Kalô - Rongead
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