Coffee trade slow due to low prices, tax uncertainty

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Trading on Vietnam's coffee market slowed on Tuesday as foreign buyers sought larger discounts and exporters were reluctant to sell also because of uncertainty over a tax relief policy, traders said.

The world's top robusta producer is expected to sell more coffee to the market in coming weeks ahead of Tet, Vietnam's biggest festival to mark the Lunar New Year that arrives on Jan. 31, and the selling pressure has kept global prices in check.

Domestic prices widened to 34,400-35,100 dong ($1.63-$1.67) per kg on Tuesday, from 35,100 dong on Monday and 34,500-34,800 dong a week ago, after Liffe March robusta ended unchanged at $1,739 a tonne on Monday.

"The selling demand does exist, while buying is not active as roasters want very low prices," a dealer at a European trading firm in Ho Chi Minh City said.

Quotations by Vietnamese exporters ranged between a premium of $10 to a discount of $10 per tonne to London's March contract for robusta grade 2, 5 percent black and broken, while buyers bid discounts of $20-$30 a tonne to the March contract.

Vietnamese coffee farmers, who control around 80 percent of the country's growing area of the crop, have sold between 20 and 30 percent of their harvest under the 2013/2014 crop year that began in October, traders estimated.

The crop is forecast to have yielded up to 29 million 60-kilogram bags, based on traders' estimates, up from around 25 million bags in the 2012/2013 season that ended in September.

Traders who toured the Central Highlands coffee belt recently said farmers could sell more in coming weeks but their selling will not match the pace of last year due to the current low prices and growers had also enjoyed higher prices in 2013.

Farmers have been expected to sell quicker if prices reach 38,000-40,000 dong per kg, or when London's front-month contract rises to at least $1,860 a tonne.

Vietnamese robusta fetched $2,092 a tonne on average last year, up 5 percent from 2012. But the country's export volume dropped around a quarter from the previous year to 1.3 million tonnes, based on government data, due to lower output and uncertainty about tax refunds, which boosted the prices.

Exporters are still selling slowly despite the government announcing the scrapping of the 5 percent value added tax effective from Jan. 1, 2014 due to confusion about its implementation, traders said.

"Many still don't know how to declare tax as several provincial tax departments have yet to issue clear instructions, waiting for Finance Ministry guidance," a second trader in Ho Chi Minh City said.

Exporters are reluctant to trade also because many are still waiting for VAT refunds from deals in 2013, traders said.

Vietnam's coffee exports this month could drop to 100,000-150,000 tonnes, from an estimated 120,000 tonnes shipped in December, traders have said.

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