Icra stated drop in CTC prices is evident more in the good category tea, while the prices of medium or low category of teas have improved, albeit marginally
Major tea producers in the country are likely to stay under stress due to lower realisation of tea and increasing costs, rating agency Icra said on Thursday.
The agency reports tepid tea prices are estimated to keep profitability of bulk tea players under pressure in FY20, owing to the continuous decline in CTC prices from the end of April 2019, on the account of significant increase in the Northern Indian (NI) crop by 18% during March and April 2019.
The report said while the CTC prices were negativelyhit, orthodox tea prices witnessed significant improvement and remained firm, backed by healthy export demand, particularly from Iran. Going forward, despite the uncertainty regarding exports to Iran, orthodox export volumes are unlikely to be materially impacted in the current year, given the large volumes already exported.
Icra vice-president and sector head for corporate ratings Kaushik Das said,“Given the continuous correction in CTC prices from the end of April 2019, the overall NI tea prices are unlikely to improve significantly in the current year. While orthodox tea prices are considerably higher, it will provide only marginal support, given the limited volumes of orthodox teas in total NI tea production.”
Icra further stated the decline in CTC prices is evident more in the good category tea, while the prices of medium or low category of teas have improved, albeit marginally. This is on the account of different supply-demand dynamics across the various price points in the bulk tea industry.
Lower cropping patterns and healthy realisations of orthodox teas, which account for a higher proportion in the total production of SI teas compared to that in the NI, have driven the overall price movement at auction centres in South Indian (SI) tea.
Icra report said the overall global tea production witnessed a de-growth of 2.2% during 4M CY2019, primarily due to a fall in Kenyan and Sri Lankan crop levels.
“Kenyan auction prices, which were adversely impacted during CY2018 owing to bumper tea production, continued to remain under pressure, notwithstanding a marginal improvement after April 2019. Sri Lankan weekly auction prices also continued the downtrend witnessed over the past year, largely on account of the subdued demand from major importing countries. The softer trend in international tea prices also impacted India’s export prospects, to an extent,” Das said.
The aggregate Indian tea export volumes remained largely stagnant during 4M CY2019. In terms of value, however, exports increased by 17% during 4M CY2019 to `1,820 crore from `1,566 crore during 4M CY2018, on the back of the healthy demand for orthodox tea.
Given the marginal tea price movement, the credit profile of NI bulk tea players would continue to face headwinds, Das added.