Dip in tea prices a worry; crop shortfall narrows

Recent auctions in Colombo have witnessed a significant downward trend in prices for Low Growns, causing a fresh round of concerns for the tea industry.

According to John Keells Ltd., averages have been plummeting steadily from Rs. 452 at sale No. 38 of 25/26 September 2012 to Rs. 407.31 at the recently-concluded sale No. 41 of 16/17 October 2012, which reflects a drop of Rs. 45 in four sales.

“High priced Tippy teas which feed the Iranian market have come under severe strain with prices dropping significantly in comparison to the Leafy teas,” the produce broker said.



It is reported that the European Union Government which had met in Brussels on 15 October 2012 had decided to enforce further financial and trade sanctions on Iran with the exception for humanitarian trade. In addition to the extensive trade and financial sanctions already in place the new sanctions will add more pressure on the Iranian economy.

John Keells said tea imports to Iran are expected to continue at least during the current winter months, but with the local currency recording a sharp fall in value, customers will be compelled to pay higher prices as importers will find it difficult to acquire letters of credit and transfer of funds.

“The situation in Syria remains much the same as reported earlier, which is another area of concern, particularly for the Low Grown Leafy teas, which have also not fared too well. Given the present scenario, the immediate prospect for a quick turnaround does not look promising, particularly in view of the fact that present winter buying for Russia, which props up the market at the this time of the year, will cease in a few weeks time,” John Keells said. “This could further weaken demand for Low Grown teas,” it added.

In a more positive development, the tea crop in September saw an increase to 26.82 million kilos, from 24 million kilos in the corresponding month of last year. This reduced the year-to-date deficit in the crop to 1.3% to 241.7 million kilos as at September from a deficit of 3% as of end August. In the first nine months of last year the crop was 245.1 million kilos. It is the second consecutive increase year on year following August.

Low Grown saw the biggest increase in crop in September, up from 15.6 million kilos in September last year to 17.9 million kilos this year. This saw cumulative Low Grown crop at 149.4 million overtake more convincingly the last year’s first nine month total of 147.3 million kilos.

High and Medium Growns saw modest increases as well. CTC production too improved.

In the meantime Ex-Estate teas over the past few sales have held their own, maintaining steady price levels. BOPs have met with better demand over BOPF due mainly to the small quantities on offer, the broker said.

Last week Ex-Estate teas auction met with good demand. The Best Western High Grown BOPs were irregularly lower at the commencement of the sale, however appreciated as the sale progressed, whilst the others too were firm to dearer.

BOPFs too, which was initially Rs. 5 to Rs. 10 dearer, gained further as the sale progressed. Nuwara Eliya BOPs declined sharply by Rs. 40 to Rs. 50 with a number of invoices remaining unsold. BOPFs were firm to dearer. Uva BOPs were firm to a little easier, whilst BOPFs appreciated Rs. 15 to Rs. 20 and more at times. Low Grown CTC PF1s were mostly firm, whilst High and Medium types were firm to easier. Best Low Grown BP1s maintained; others tended lower.