Tea prices to stay firm as global output slips

Kochi, Sept. 19: Tea prices are likely to remain firm as production shortfalls loom large before Indian and global tea markets.

Persistent rains over the tea growing regions of South India during August and September is likely to adversely impact the crop. Though the rains seem to have abated by the third week of September, sources said, much of the damage has been done.

The surfeit production from North India made up for the sharp production shortfalls from South, said Mr R. Sanjith, Head of Commodities, United Planters Association of Southern India (UPASI).

Production affected

The incessant rains had affected plucking operations in South India. But it does not seem likely that the increased North Indian production, which had helped to buttress the slippages from South India, is likely to continue into the next few months.

Along with India, production shortfalls in Kenya, Sri Lanka and Uganda are likely to drag global production lower.

Kenya and Uganda

Global production had dipped by 11 million kg by July on account of huge shortfall from Kenya and Uganda. A dip in tea production from India could further tilt the delicate demand-supply balance in the global markets.

Indian production was higher by close to one million kg while Kenya reported a huge shortfall of 31 million kg. Ugandan production had slipped by over 5 million kg. Latest reports also indicate that persistent rains have begun to affect the tea crop from Sri Lanka. The island nation's tea production was up by close two million till July 2011. Sources in the trade said that all that could now change.

Exports

Tea exports from big producing countries, excluding China and Sri Lanka, had dipped during the current year. Indian exports witnessed the steepest decline on 17.5 million kg till July 2011, while Uganda recorded an export shortfall of six million kg and Kenya close to five million kg. The decreased tea arrivals in the coming months could mean that the prices are likely to remain firm.

Growth in China

While several countries recorded fall in exports, China reported brisk growth by close to 14 million kg by June 2011. Kenya was the biggest tea exporter in the world last year, accounting for over 25 per cent of the global tea trade, followed by China and Sri Lanka with over 17 per cent and with India with over 11 per cent.

After the sharp rise in tea prices during 2009, there was a dip in 2010 and the prices are continuing to rule at last year's levels. The emerging trends in global prices could become evident depending on the world production trends in the coming months.

Source: Business Line

India dust tea rises on demand; CTC drops on quality

MUMBAI, Sept 16 (Reuters) - Dust tea prices in India, the world's second biggest producer of tea, rose at this week's auction on good demand from packet tea manufacturers, while CTC fell due to poor quality leaf supply, dealers and industry officials said on Friday.


Price of CTC (crush-tear-curl) tea was at 124.85 rupees per kg, 1.43 percent lower than 126.66 rupees at the previous weekly auction.
Dust tea rose 0.63 percent to 123.01 rupees per kg from 122.24 rupees at the previous auction.
"Quality of CTC was poor compared to the arrivals in the previous auction. That's why it fetched lower prices," said Kalyan Sundaram, secretary, Calcutta Tea Traders Association. "Packet tea makers were actively buying dust tea."
Tea exports by India could fall nearly 7 percent in 2011 to 180-185 million kgs partly due to payments problems with Iran and unrest in the Middle East, a senior industry official said on Sept. 14
India is the world's second biggest producer of tea after China. It exports CTC tea mainly to Egypt, Pakistan and the UK, and the premium orthodox variety to Iraq, Iran and Russia.
The country's tea production in July rose 8.2 percent to 133.27 million kgs, on conducive weather, while exports fell 8 percent to 15.26 million kgs due to poor demand from the Middle East, the Tea Board said on Sept. 8.
Prices in the latest auction (Sept 13-15)


(Quantity in kg; price in rupees per kg) ----------------------------------------------------------
Variety Offered quantity Sold quantity Avg Price ----------------------------------------------------------
CTC Leaf 2997127 2219571 124.85
Dust tea 1568846 1163630 123.01
Prices in the last auction (Sept 6-8)
----------------------------------------------------------
CTC Leaf 2917786 2369358 126.66
Dust tea 1614557 1194400 122.24
Source: Calcutta Tea Traders' Association (Reporting by Rajendra Jadhav; Editing by Sunil Nair)

Source: Reuters

We expect another year of very firm tea prices: McLeod Russel

Aditya Khaitan, MD, McLeod Russel, in an interview with ET Now predicts another year of very firm tea prices.

The tea deficit widened to 130 million kgs compared to 110 million kgs that was estimated earlier. What’s your own estimate of the shortfall in production globally and particularly in India?

Globally the world market has reacted in terms of shortage because of the draught that hit Kenya as well as Sri Lanka and India is because of the consumption story. So if you look at the three countries in totality, we are looking at around about 130 million shortage in the inventory pipeline.

I do not see any of these three countries in the near future being able to produce this shortage and meet the consumption growth at the same time.

In India, we are growing at around 3.5% in the consumption pattern, so India needs approximately 35 million kgs every year to feed its consumption growth. You have other countries like Pakistan, Egypt, Middle East and the other countries also growing at a much more slower rate but it is adding to the consumption growth pattern.

So going forward, I see that demand-supply mismatch will remain for the next few years and prices will remain strong for the next few years to come.

Particularly in India, the major tea producing states like Assam and West Bengal are clearly not likely to produce tea until early April. Keeping that in mind, what is your estimate of the shortage that India is likely to face?

We started last year with a shortage of around 20 million. This year, I do not see the production meeting last year’s target, so we will end up with at least a shortage of 10 million. Add to that the 35 million requirement for the consumption growth, you are looking at close to 45 million shortage in the pipeline.

So we will start this year in the month of March-April with about 65 million shortage. Obviously this will work out to the pipeline inventory levels of all the major packers in a very, very low level and they will be hand-to-mouth .

Also, new season tea buyers tend to buy because it is fresher, it is better quality and hence the price reaction will be much, much stronger than what we saw roundabout March-April of last year.

What’s your estimate on tea prices in the coming months?

I would like to clarify that when you talk of prices being all-time high, you must also see from the base from which the prices have started rising. In India, we were running at around Rs. 99-100 for the top level teas in 1999-2000.

From there, the price of tea dropped to Rs 72, in fact lower, and we came down to levels which are below cost of production. So we are now only playing catch-up to meeting the requirement of what is the inflationary levels of tea that should be.

If you just take inflation as a barometer from 1999 to 2010, then we are well below the inflation level also. So you can say the prices are moving up but according to me, we are only playing catch-up. We are still Rs 25-40 lower than what it should have been at this time of the year.

Any estimate for the year 2010 in terms of an outlook
for price?

It is a very, very difficult question to answer because it is basically related to weather also, so going forward, it all depends upon how the season starts in the month of March and April. If we get the rains that we want roundabout February-March to start the season going.

If the weather comes in, I feel the market will still open much stronger and then may be by July, it might start tapering off when the main bulk of tea start coming in. But if we open the year with a drought, then being a commodity, prices can go to any levels.

What are your current realisations per bag then and what does a Rs 10 hike per bag mean in terms of margins for you?

We have been able to increase our volumes over the last few years. For us, we are presently in McLeod Russell producing close to 80 million and a Rs 10 rise will obviously transform to 80 crores to the bottom line.

We have also made two acquisitions overseas with Vietnam last year and recently we have acquired 15 million kgs in Uganda. So obviously the price increase that will take place will substantially add to the growth in the bottom-line.

Our equity is strong. Our debt is coming down every year, so basically going forward, a Rs 10 increase would tantamount to close to 80 to 90 crores to the bottom-line of McLeod Russell.

Do believe that even if the crop is normal next year, we could continue to face supply shortage?

As I said to you that even if India produces 20 million extra this year in its production, it will still be falling behind the demand of 35 million. So therefore, going forward we have come to a situation where according to me the market, the whole that has been created of close to 130 million, will take a long time for any of the three countries to be able to match up.

So do you believe then that you actually expect to see a full year of firming tea prices ahead of us?

Well, we hope so. As per what I can see on paper, yes, we expect another year of very firm tea prices.

You recently acquired Uganda Tea Company for about 118 crores. What’s happening there and are you also looking at raising any funds, any other acquisitions in the non-organic space?

We do not need to raise any funds. We have managed to make the acquisitions out of internal accruals. As I mentioned, our debt equity is quite strong. We have enough cash accruals to meet the requirement and yes, acquisitions are an ongoing process. We will certainly keep on looking at strategic opportunities and if they make sense, we will certainly look at it much more seriously.

So what about acquisitions in Africa. Is that a space you are looking at?

We have a team that is looking around keeping an eye on what’s happening in the various countries in Africa and if any opportunities are around and if they are willing to be sold, yes, we would certainly show interest.

Tea price surge fuels hope of turn around

Siliguri: Frantic end-of-season sales have taken tea prices to a new high in north Bengal, making this year the best since the industry went into recession about six years ago.

“It’s boom time with tea prices going up significantly,” said S.K. Saria, the chairman of Siliguri Tea Auction Centre (Stac). “Although the benchmark set by the golden period of the 90s is still far away (see chart), this year’s is a remarkable gain compared to that of last year, which itself was better than the preceding year. The industry seems to have made a U-turn and if the trend carries on for the next few years, the tea sector will be able to regain its lost glory.”

The average price during Sale 50 held on December 20 was Rs 74.98 per kg, while that of Sale 49 held on December 13 was Rs 73.24, according to auction sources.

“The average price of Sale 50 last year was Rs 62.50,” said Ravi Agarwal, a former chairman of Stac and a member of Siliguri Tea Traders Association. “That is a gain of more than Rs 12.”

According to the latest figures, the average auction price this year — up to December 20 — is Rs 67.44 per kg. The corresponding figure in 2006 was Rs 66.60 and in 2005 Rs 59.29.

“This year’s average price is the best ever since the recession set in,” said P.K. Bhattacharya, the secretary of the Dooars Branch of Indian Tea Association. “This end-of-season fillip will help keep the prices high until the middle of next year at least.”

Industry watchers said the price boom was driven by a combination of several factors.

“There was no tea in the pipeline,” Bhattacharya said. “In addition, there was a drop in the overall crop production by about 20 million kg. The shortfall in supply had an obvious effect on prices.”

The trend was also affected because several CTC manufacturers took to making orthodox teas, Agarwal said. “This year, more than 20 million kg tea was converted into the orthodox variety, which always fetches good prices. The shortfall in CTC helped boost its prices,” added Agarwal.

“Major buyers like Unilever who were silent for most part of the year, were at their active best as the end approached,” Saria said. “The competition from major buyers firmed up the prices further.”

However, all stakeholders of the industry agreed that it would be a challenge to sustain the trend.

“To take the industry forward, we have to ensure that we do not compromise on the quality of tea in our bid to sustain the boom,” Saria said.

“Often there is a tendency to compromise on quality to increase production and meet the increasing demands. If we give in to market pressure in this way, we will get sucked up into recession again,” the Stac chairman added.

Source: The Telegraph