Coffee trade houses and roasters in Europe are fuming over delays of several months in getting supplies out of warehouses in Antwerp and say the Liffe exchange is failing to meet its mandate as supplier of last resort.
Some two thirds of global stocks of robusta coffee certified by NYSE Liffe
Dwindling stocks in Vietnam, the world's second biggest coffee producer after Brazil, helped push prices for beans purchased at origin to high premiums over Liffe futures and caused the coffee industry to turn to stocks held in Europe.
You shouldn't have a situation whereby you've got physical premiums at significant levels and when people go to take up exchange stocks they discover they can't access the product in a timely manner, said James Hearn, joint head of agriculture at broker Marex Spectron in London.
The warehouses are preventing cash convergence as people are unable to use the exchange as a supplier of last resort as all commodity futures contracts should be.
Some companies that urgently need robusta coffee -- used mostly in blends and instant coffee and the second largest grown variety after arabica coffee -- are scrambling to find other sources. Many are turning to the spot market and effectively paying again for coffee they had already purchased on the exchange but cannot access.
The logjams at coffee warehouses mirror a controversy in metals markets, where moves by the London Metal Exchange to request aluminium warehouses in Detroit to speed deliveries and cut delays were criticised by buyers as too weak a response.
Coffee industry players wonder why a huge concentration of stocks was allowed to build up in one location with no effective rules to ensure speedy delivery out of the warehouses, which earn rental income as long as coffee remains in the facilities.
There are large Liffe robusta stocks and there is excellent demand for these coffees for roasting prior to the end of 2011, however, some warehouses are not making these stocks freely available for physical delivery to the roasters until middle of January 2012, said a dealer at a European coffee trade house.
The Liffe robusta market is therefore not functioning as a supplier in a time of need.
ROLE OF LIFFE
The issue comes at a time when governments worldwide are calling for increased regulation of commodity markets.
Conflicts in financial markets are one of the key issues being looked at by regulators. The warehouse keepers have a major conflict as their interests can be at odds with the interests of their customers; their customers may want coffee swiftly, whilst the warehouse is incentivised to hold onto coffee for as long as possible, Marex's Hearn said.
The European Coffee Federation (ECF) contacted Liffe earlier this year about the rate warehouses release coffee, which is often slower than the rate they take it in.
The ECF confirmed it has received a communication from Liffe on the issue, which it is considering internally. The organisation declined to give any detail on the content of the communication.
Liffe, which has the main responsibility for regulating the market, declined to comment.
The exchange's grading and warehouse keeping procedures state that Liffe inspects warehouses on a regular basis with one objective being to ensure warehouse keepers have adequate procedures in place for the delivery out of goods.
Coffee dealers said that the delays showed some warehouses were not meeting this requirement.
The exchange should be more vigilant in ensuring that there are procedures with time frames in place for the delivery of coffee out of the licensed warehouses while constantly reminding them they are there to fulfil the needs of their clients, said the chief operating officer of a U.S.-based global importer and exporter of green coffee.
Upon delivery of coffee, the exchange should limit the concentration of awarded certified stocks to the various warehouses so you don't create a bottleneck for the owner of the warrants.
Warehouses can move out around 200 tonnes of coffee per day, at times a tiny fraction of stocks which can run into tens of thousands of tonnes, industry sources said.
It is very inconvenient because what you want is an efficient market, which means the timely loading out of coffee when you need it, said Mario Cerutti, supply chain and coffee buying department director at Italian roaster Lavazza. Cerutti added that the company has not been affected by the delays.
International commodity trade houses said they face delays of up to 10 weeks if they try to move certified coffee out of Wilmarsdonk, one of the major warehouse keepers of certified stocks in Antwerp.
Right now Wilmarsdonk is saying its first available load out period is in January and the normal expectation is two to three weeks maximum, said a dealer at an international commodities trade house.
Wilmarsdonk is a division of Port Real Estate NV and is licensed to warehouse exchange certified coffee by both the ICE Futures
We are one of the biggest stock holders of Liffe certifieds so at the moment it's normal that the delays could be higher, which is normal in such periods after the deliveries against Liffe's September and November contracts, said Bart Dillen, operations manager at Wilmarsdonk.
Most of the coffee that was stopped on September has now been loaded and we are busy scheduling the November stops for the coming weeks.
Antwerp is where the majority of coffee is stored in Europe, with warehouses there holding 224,790 tonnes of certified coffee as of October 31, of a total of 331,760 tonnes held in Liffe nominated warehouses globally, according to exchange data.
Data is not available on how much tonnage is stored in individual warehouses.
A large proportion of trade and roasters have been short of coffee in the last two to three months and given that there is limited FOB coffee available at origin, they've turned to the futures market to meet their needs. This has led to unprecedented demand for coffee warehoused in Europe, so demand to have it moved out from warehouses must also be unprecedented, said a large trade participant.
While warehouses need to increase their load out rates, if people use the futures market as a last resort of supply for a only couple of months of the year, it's difficult for warehouses to staff for this.
Dealers said that the combined deliveries against the September and November Liffe futures contracts were larger than normal, but that this was no surprise as it was the cheapest coffee available.
Some of the coffee that we would be expecting to move out of warehouses is getting delayed anywhere between a few days and a few weeks. The situation has become worse over the past month because there's been some delays in the flow of the Vietnamese crop, causing increased demand for warehoused coffee, a spokesman at an international coffee roaster said.
(Editing by Nigel Hunt and Eric Onstad)