Business Tea Report

Strong demand for Bold Pekoes

Bartleet weekly Tea Report:

The quantity of tea arriving at the Colombo Auction this week decreased to 6.251mkg from 6.800mkg traded in the previous sale. The Ex-estate crops too have decreased to 0.814mkg from 0.856mkg.

Market segments: Except for the Dimbulla seasonal quality teas, other varieties such as BOP and BOPF reported lower levels in the Ex-estate segment of the sale.

Russians were very selective in buying whilst the expectation of Kenya’s crisis easing-off served to hold prices down. The lower trend is anticipated to carry on till the month of May this year.

In the Tippy market segment fair demand was witnessed. Moderate buying pattern was observed from all the buying nations.

In the Leafy-grade segment, teas appreciated across the board except for the select Best OPAs.

The most significant improvement was shown on the Pekoe grade, particularly for Bold Pekoes which met with strong demand especially from shippers to Turkey.

Global trends: According to the food and Agricultural Organisation (FAO) world tea prices are forecasted to increase due to the decrease in Kenyan production. This, the report says, has triggered a tightening of supply on the world market that will amount to some ten per cent.

However, world tea production has grown by more than three per cent to reach an estimated 3.6 million tons in 2006.

The increase in supply has been driven by a record crop in China with 1.05 million tons representing an increase of 9.5 per cent over the previous year. Vietnam has also posted an increase of 28 percent whilst India too recorded an increase of three percent totalling 945,000 tons of 2006.

On the demand side, world tea consumption grew by one per cent in 2006, reaching 3.64 million tons mainly due to a 13.6 per cent growth in China’s consumption which has now surpassed India.

The FAO estimate a 1.9 per cent annual growth in tea production over the next ten years with green tea production gaining by 4.5 per cent. Such forecasts are, of course, based on the assumption that, hopefully, there will be no emergency situations especially with regards to weather.

Kenyan crisis: In the troubled East African State, prices have been increasing at the weekly Mombassa auctions but the Kenyan tea producers and dealers are likely to miss out on increased earings due to low volumes reaching the export markets.

There has been a ten per cent fall in production this year compared to 2007 due to the currently prevailing dry weather conditions as well as the political upheaval which interrupted the tea plucking and processing in January. Consequently, the projections are that export volumes will drop by about 25mkg this year.

Tea futures: The world’s first tea futures contract is set to be launched in Dubai according to officials of the Emirate State’s Multi Commodities Centre.

A well-functioning futures market will be a possibility due to the fact that Dubai is ideally positioned from a strategic geographical perspective as it is located between the key tea producer’s and major consuming countries.

However, industry sources have stated that it would not be easy to create a standard for a tea futures contract because of the wide varieties grown in various countries.

Plantation stocks: Heightened interest in plantation stocks has been driving the Colombo bourse where, for instance, turnover doubled from Rs. 222.3m to Rs. 463m over one single day last week.

Whilst the biggest contributor was Maskeliya plantations, which reported a turnover of Rs. 109m, Madulsima. Balangoda and Bogawantalawa have also reported healthy turnovers of Rs. 42m, Rs. 32m and Rs. 22m respectively.

This week witnessed Kelani Valley also getting a slice of the action as Rs. 18.4m or 259,000 plantation shares changed hands. Stocks for Kegalle, Kotagala, Balangoda, Bogawantalawa, Namunukula, Maskeliya, Horana and Agalawatte plantations were also heavily traded.

Even so the looming electricity hike of 43 per cent is around the corner and is likely to put a check on the long-term prospects of these plantation companies.

With reference to the weekly surveillance of the 19 plantation stocks, 16 were high in value whilst two reported static and one was low.

Kelani Valley, Bogawantalawa and Kegalle plantations witnessed a significant gain of 24, 14 and 10 per cent respectively week on week.

Weekly average price movements

Western high growns

Selected Western BOP’s appreciated by Rs. 10 per Kg and more following special inquiry. Others together with the below best sort declined by Rs. 5.15 per Kg whilst the plainer and the poor types lost upto Rs. 20 per Kg. A few select best western BOPF’s were firm to dearer. Others along with a below best varieties lost Rs. 5-10 per Kg and more for the thin liquoring teas. Plainer sorts lost Rs. 5 per Kg on an average.

Nuwara Eliyas

Nuwara Eliya BOP’s were irregular and mostly Rs. 5-10 per Kg dearer whilst the BOPF’s were irregular and Rs. 5-10 per Kg lower.

CTC

Lower demand BP1’s Rs. 5-10 lower whilst PF1’s lost by a similar margin. However low grown PF1’s declined by Rs. 10-20 per Kg.

Western medium growns

Select best BOP’s were difficult out of sale whilst the others lost by Rs. 10-20 per Kg. Whilst the BOPF’s continued it’s downward trend and lost by Rs. 5-10 per Kg.

Uva/Udapussellawas

Udapussellawa BOP’s lost by Rs. 5-10 per Kg and more. Progressively BOPF’s followed a similar trend however more towards the close of the sale.

Off grades: Liqouring FGS/FGS1’s were lower by Rs. 5-7 whilst the cleaner BM/FGS’s met with good demand.

Dust: The dust market made a slight comeback this week due to the participation of the main buyers once again. Here the best liquoring dust/dust1’s appreciated by Rs. 3-5 whereas secondaries rose by Rs. 2-3.

Low grown cleaner blacker dust/dust1’s appreciated by Rs. 5-8 whilst secondaries remained firm.