Fewer Days for Traders to Move Coffee
at ECX
Twenty day expiration due to storage issues; weight,
moisture rules adjusted as well
By Elleni Araya
May 5, 2013
The warehouse at
Saris, with a capacity of carrying 300,000 quintals, is the largest coffee
storing warehouse ECX has, it is also the nearest to the ECX trading floor.
The Ethiopia
Commodities Exchange (ECX) is reducing the expiration date of warehouse
receipts issued for coffee which will go down to 20 days from the previous 30
as of May 9, 2013.
This is one of four
changes introduced by ECX and approved by its supervising body, the Ethiopian
Commodity Exchange Authority (ECEA). Changes introduced include moisture
adjustment, the amount that should be contained in a bag, and the cost of
handling goods.
The receipts, which
serve as legal titles and financial instruments, are issued by the ECX to
traders once they put their commodities in an ECX warehouse.
The ECX introduced
these changes following a series of studies it conducted during the current
year. The Authority gave its blessing to the changes two weeks ago.
ECX's executives
including Anteneh Assefa, CEO of the Exchange, Abenet Bekele, Chief Strategy
Officer (CSO), and Shimeles Habtewold, Chief Compliance Officer (CCO) discussed
the amendments with Exchange members on Tuesday, April 31, 2012.
Members who sell
coffee must store it in ECX warehouses within the expiry date or face the daily
penalty levied in the contract, which amounts to 3.5 pc of the current tradable
value of the coffee they have stored in ECX warehouses.
The current tradable
value of a warehoused commodity is calculated based on the closing price of the
same grade of the commodity on the trading floor for the day.
It is not the first
time that the deadline for warehouse receipts of coffee has been reduced. In
2008 when ECX came onto the scene, suppliers and intermediary members (who sell
on behalf of others for commission) were given 90 days to make a transaction.
However, as suppliers refrained from making a sale because they were looking
for better returns, which inflated the price, this was slowly changed down to
thirty. Other commodities sold through the exchange like sesame and haricot
beans, have a 60-day deadline.
The current deadline
change was made following an in-house study of transaction data from the past
18 days, according to Anteneh. The study revealed that 50pc of members storing
coffee at ECX warehouses make a sale within eight days and 90 pc of members
within 20 days.
"In most cases
the leftover 10pc did not sell their goods because of special
circumstances," he said.
Despite the fact that
a vast majority of traders were able to move the coffee by that deadline,
suppliers that Fortune talked to were not pleased by the change.
"It hurts us, especially
when the markets are as low as they are now," an intermediary member of
ECX, who had been trading on the floor since 2008, told Fortune.
"Even
with the 30 day deadline, sometimes we are forced to settle for low prices, in
order to avoid penalties," said this member, adding that he was forced to
sell a feresula (17kgs) for 750Br because of it.
"It
was 50 Br less than what I would have got had I held on to it for a few days
longer," he said.
The
primary purpose of the ECX warehouses is to facilitate trade and not storage,
Anteneh countered.
"Storage
space at warehouses is limited, and we must set the deadline in accordance with
trends observed in the research," he told Fortune.
Currently
nine of the 16 ECX warehouse sites store coffee. The warehouses at these sites
have the capacity to store 1.4 million quintals at a time.
During a discussion
on Tuesday with senior officials, coffee traders asked that the deadline be 20
business days because many suppliers complain that with weekends and public
holidays a 20 day limit leaves them few days to conduct business.
However, as the
previous thirty day deadline was also based on calendar days instead of working
days there will not be any change, Anteneh said. The officials at the meeting
told the members that in the future Saturday could become a business day.
The other change
deals with moisture adjustment and the weight differences of the coffee that
suppliers bring and buyers take from the warehouse. The suppliers are only
allowed to bring coffee to the warehouse when the moisture is equal to or less
than 11.5pc.
The moisture
adjustment rate is different for sellers and buyers. Previously the ECX
calculated a 0.0085pc daily weight loss for the supplier.
Now the ECX has
introduced two flat rates. For the suppliers, the coffee is assumed to go
through a reduction in weight of 0.137pc daily, whereas for buyers goes down by
0.0344pc. Every day coffee for sellers is reduced by one kilo out of 730 kilos
while for the buyers it looses on kilo for ever 2,941kg.
After the coffee has
been sold, it can remain in the warehouse for 10 days.
These adjustments are
made despite a study finding that coffee loses 0.22pc of its total weight
during storage, Abenet said.
Further adjustments
will be made based on the weather conditions of ECX warehouse locations, he
said.
The rates for
handling goods at ECX warehouses has also been changed from 2.10 Br a bag for
buyers and 2.70 Br for sellers to flat rate of 3.50 Br.
"The ECX
subsidises the cost of handling goods which even the 3.50 Br does not
cover," Anteneh told Fortune.
There was not a lot
of objection raised during the meeting on this increase.
The fourth change in
the amendment requires that a bag of washed coffee without parchment must be
85Kg, the same amount as for unwashed coffee. The previous contract only
required a net weight of 60Kg in a bag for washed coffee, with or without
parchment.