Tea prices likely to rise on production decline
Kolkata: After a stagnant phase lasting months, tea prices have started firming up and are likely to rise further on the back of declining production for a variety of reasons, experts say.
As per Tea Board India data, production in North India in September declined by 42 million kg. Apart from Assam, tea production in the Dooars and Terai regions of West Bengal also went down by around nine million kg "owing to climatic adversities".
"September tea production was down substantially in North India owing to climatic adversities. There were some marginal gains in October. However, there was a drop in production taking September, October and November collectively. Thus, the prices should be Rs 10-15 a kg higher," Indian Tea Association Chairman Azam Monem told IANS.
In 2016, India produced 1,267.36 million kg of tea, with North India -- which includes Assam and West Bengal -- accounting for 1,054.51 million kg.
The decline is even more prominent in Assam where production declined by around 31 million kg in September due to excessive rains. The overall crop in Assam fell by around 23 million kg in the January-September period of this year.
"The months of September and October contribute about 25 to 30 per cent of annual production in Assam. The September production was down by over 25 per cent compared to the corresponding month last year and October production this year was at par with the year-ago month," North Eastern Tea Association's Advisor and former Vice Chairman of Tea Board India Bidyananda Barkakoty told IANS.
"It is expected that the annual production shortage this year in Assam is likely to be around five per cent of last year's production. In view of this, the prices are expected to firm up in the coming months," he added.
Assam, which accounts for 50 per cent of India's total production annually, had produced about 669 million kg in 2016.
Following the drop in production, tea prices started moving up with the immediate sentiment.
"The average CTC (crush tear curl) tea prices, which have been flat till October as compared to the same period last year, have firmed up in recent sales. The average CTC tea prices, currently, are ruling at Rs 15-20 per kg higher than last year. For example, best quality Assam CTC tea was at about Rs 245-270 per kg in sale 44 as against Rs 230-250 per kg in the corresponding sale last year," Calcutta Tea Traders' Association Secretary Kalyan Sundaram told IANS.
According to him, the price of good quality Dooars CTC was also up by Rs 10-15 per kg in sale 44 and the price of orthodox tea of Assam was also ruling higher.
Rating agency ICRA's Vice President and Sector Head (Corporate Ratings) Kaushik Das said one had to look at factors that impacted the rates last year while taking a call on the likely price trajectory going forward.
"Large production increase towards the end of the season, when quality and consequently prices take a seasonal hit, exacerbated the price decline last year. With production being already down till September this year, and weather patterns reportedly not being supportive of production levels, it is unlikely that there would be a large increase in the remaining months of the season. Hence prices are expected to rule firmer than last year," Das told IANS.
The weekly North Indian auction price is already higher and stood at Rs 152.24 per kg at the end of the second week of November 2017 compared to Rs 147.44 per kg in the corresponding week of the previous year.
Another trend that has emerged this year is the premium that quality tea varieties are commanding in the market, Das said.
Sundaram also said average price of Darjeeling tea has gone up substantially due to very low availability caused by the unrest in the hills.
"Some 0.8 million (800,000) kg of Darjeeling tea was auctioned with an average price of Rs 416.35 per kg till the end of October, as against 1.79 million kg auctioned in the same period last year with the average price of Rs 340.98 per kg," he said.
In the sale no 43 only, conducted in last week of October, the average price of Darjeeling tea was ruling at Rs 729.82 per kg, almost three times from the average price of Rs 244.48 a kg in the year ago sale due to "the small quantity offered".
During the first nine months of calendar year 2017, Indian export volumes increased by 7.2 million kg with a year-on-year growth of 4.5 per cent, primarily supported by the lower tea availability in the global market, given the decline in Kenyan production, Das said.
"Indian export realisation has increased from $2.96/kg during 9MCY2016 (nine months of calender year 2016) to $3.01/kg during 9MCY2017. The overall value of tea exports has increased by 3.4 per cent, from Rs 31.6 billion during 9MCY2016 to Rs 32.66 billion during 9MCY2017, driven by higher export volumes notwithstanding the appreciation of the rupee," Das added.