Tea prices likely to move up on robust demand, supply concern

Written by RajeshRavi | Kochi | Updated: Jul 5 2014, 07:15am hrs
Tea prices are likely to move up due to robust demand and lower supply from North Indian plantations. Auction prices now are lower compared to last year, but traders expect the market to move up. India is a leading producer of tea with 25% share but consumes 75-80 % of its own production.

Ideally, prices should move up as the fundamentals support a firmer market. Auction prices are lower when compared to the same period of last year Global production is lower by 42 million kg and Indian production till May is also seen lower. Exports during the five month period of 2014 are also higher by 6.7 %.

Robust demand from both domestic and export market should support the prices in the coming days, Peter Mathias, president of United Planters Association of Southern India (Upasi) told FE. Average price for tea, which includes both CTC and Orthodox for the January May period stands at Rs 113.74 per kg for 2014 as against Rs 123.62 during 2013.

Tea production in Assam is lower and likely to decline by 10-15 % in 2014 due to scanty rainfall and a sharp rise in temperatures, sources said. India's tea production in May dropped by almost 12 % from a year earlier to 91.41 million kg due to a drop in plucking in Assam following extreme dry weather. North Indian tea production is poorer by 16.64 % while South India registered an increase of 3 % during May. Traders believe that production will decline in South India during June due to the prevailing weather conditions.

Arrivals are good and the demand is robust. The market is estimated to move up in the coming days as demand for quality tea increases. Currently there is lot of low quality tea in the market and some are even exported for blending with other tea, Ajith MK, member of Cochin Tea Buyers Association and buying agent told FE.

With Kenya and Sri Lanka reporting lower production the demand for CTC is likely to move up in the coming months and help in higher realization from South India, he added. Exports to Pakistan and Egypt are seen higher in the current season.

Indian exports during last year are also on the higher side as exports to Iran and Russia increased. India exports the CTC (crush, tear, curl) tea variety mainly to Egypt, Pakistan and the United Kingdom, and the premium orthodox variety to Iraq, Iran and Russia. Exports moved up by 2% to touch 211.86 million kgs during last year.

The average price of tea during 2012 stood at Rs 121.81 per kg while it stands at Rs 128.46 per kg for 2013. According to Tea Board data, production of tea during 2013 stands at 1,200 million kg, higher by almost 6.5 % from the previous year. Higher output from small growers in the northeastern part of the country is a major reason for the growth.