Forbes and Walker recaps tea industry’s 2010

Forbes and Walker Tea Brokers this week released its overview of the 2010 for the tea industry capturing some of the salient developments as well as providing brief preview of its own assessment of the outlook for 2011. Here are excerpts:

Tea industry overview 2010

In the backdrop of a global shortfall of around 70 m/kgs at the beginning of the year, 2010 commenced on a positive note with auction averages being much higher than the previous year, coupled with a much greater volume being offered compared to the corresponding sales of last year.

As predicted, the momentum which was evident in the 4th quarter of 2009 continued into the 1st quarter of 2010. By end January 2010 total auction average of Rs. 389.74 recorded a growth of Rs. 109.25 vis-à-vis Rs. 280.49 of January 2009. This however, is not a true yardstick to gauge the market conditions as in January 2009 prices were recovering after the 2008 global melt down.

Demand for tea continued well into 1st quarter although the Western quality season was a disappointment in terms of quality, primarily due to the erratic weather conditions that prevailed. Average price of all grades of tea recorded an increase in almost all auction centres.

Another noteworthy feature is the increase in production during the 1st quarter by 47% or 23.4 mKgs YoY. In 2009 the 1st quarter national production was 49.7 mKgs. This increased to 73.0 mKgs in 2010 recording a significant gain. All elevations recorded increased production with Low Grown in particular gaining 16 mKgs YoY.

Total exports too during the 1st quarter showed a growth of 2.5 mKgs in volume whilst in value terms earnings increased to Rs. 34.9 b recording a gain of Rs. 7.3 b over Rs. 27.6 b recorded during the corresponding period of 2009 showing a growth of 24.6% YoY.

In the 2nd quarter, a revival in production was recorded in all major producing countries. Cumulative production to end June showed an increase of approx. 30% with Kenya and Sri Lanka contributing the most.

Notwithstanding the increased volume, Orthodox tea prices continued strong, particularly for the large leaf teas. CTC prices showed a decrease in May following quality, however strengthened by the end of the quarter.

Yet another noteworthy feature during this period was the revenue generated from tea exports. Total exports revenue increased to Rs. 71.3 b showing a gain of Rs. 13.6 b or 23% gain YoY. This figure is the highest ever realised for the period Jan-Jun.

In the 3rd quarter, tea production during this period stabilised totalling 76.6 m/kgs during the quarter.

In comparing with the corresponding period last year Low growns recorded a decline of 1.6 m/kgs (3.3%) whilst Mediums recorded a growth of 2.5 m/kgs (24.8%) and High growns recorded a growth of 1.2 m/kgs (8.2%).

Prices at the Colombo auction were more stable but did not surpass the buoyant price levels experienced during the same period in 2009.

By the end of the 3rd quarter, revenue from total exports reached Rs. 113 b showing a gain of Rs. 16 b YoY. This also signified the highest revenue recorded for the 1st nine months of a calendar year. It is also pertinent to note that by the end of September, whilst export volumes increased, i.e.: from 215 m/Kgs in 2009 to 231 m/Kgs in 2010. The FOB value too increased by Rs. 40.35 per Kg YoY showing a gain of 9% YoY. From a global perspective too prices for black tea continued to show a growth. As detailed below Sri Lanka continued to maintain a clear distinction in terms of pricing.

In the 4th quarter, based on the available data for October and November and anticipating approx. 25 m/kgs in December (i.e. similar to 2009 production), we would end the quarter with 80 m/kgs totalling an annual production of approx. 320 m/kgs plus, bettering the previous record. Global production on the available statistics indicates a further narrowing of the excess in recent months primarily due to the increasing shortfall emerging from India.

Tea prices have remained static or improved on the 3rd quarter levels whilst from the Sri Lankan perspective a distinct improvement has been recorded in all elevations. The overall Colombo auction average which totalled Rs. 362.26 per kg during the period July-September moved up to Rs. 381.07 per kg during October-December, possibly a reaction to the significantly lower crops harvested in India.

A notable trend particularly in November/December was the improved demand for Orthodox Rotorvane teas and CTC teas vs. Low grown type leafy teas.

Summary 2010

Tea production: Poised to reach All Time High of 320 m/kgs plus, improving on the previous High of 318.6 m/kgs in 2008. Low growns would account for approx. 59% of the annual crop this year whilst High growns approx. 24% and Mediums at 17%.

Tea prices: Colombo auction average tea prices reached All Time Record of Rs. 370.61 per kg vis-à-vis the previous all time high of Rs. 360.45 per kg established in 2009, a gain of Rs. 10.16 per kg (approx. 3%) notwithstanding the appreciation of the SLR vs. USD by approx. 3%.

High growns have moved up from Rs. 319.70 per kg in 2009 to Rs. 337.82 per kg in 2010, a gain of Rs. 18.12 per kg (5.7%). Medium growns have moved up from Rs. 315.47 per kg in 2009 to Rs.330.88 per kg in 2010, a gain of Rs. 15.41 per kg (5%).

Low growns have moved up from 388.16 per kg in 2009 to Rs. 393.40 per kg in 2010, a gain of Rs. 5.24 per kg (1.5%).

Tea exports: Revenue generated from tea exports would also reach a new record this year and possibly touch the US$ 1.5 b mark.

In analyzing the major importers of Sri Lankan tea, it is clearly evident that approx. 72% of the exports are between the Russia/CIS and the Middle East. The top 10 destinations account for almost 78% which includes 8.9 m/kgs from Japan.

Market outlook 2011

In an attempt to analyse a possible market outlook for 2011, a rational basis would be to look at the past particularly from the post global financial crisis period and equate with the supply/demand scenarios that existed and are likely to emerge during the year.

In analysing the global tea production in 2010 it would reveal that Sri Lanka is + 37.6 m/kgs (up to end November 2010) YoY, Kenya + 81.4 m/kgs (up to end October 2010), South India + 5.6 m/kgs (end October 2010), North India -22.3 m/kgs (end October 2010). This must be viewed taking into consideration the shortfall of approx. 70 m/kgs at the beginning of this year.

It has been encouraging to observe that world tea prices have held firm in all major producer countries despite excess production; the increase in consumption around the world being one of the main contributory factors, particularly absorption of tea by producing countries themselves and to a great extent the increasing consumption in India and China.

Other larger tea importing nations such as Russian Federation, Iraq, Egypt, Pakistan, Japan, etc. are also consuming more. In addition, the low inventory levels maintained by most importing countries in 2009 would also have helped to absorb the increased volumes. Yet another factor that needs due consideration is the steady growth in oil prices which would have a positive impact particularly on Sri Lankan tea prices.

Tea export volumes from China for the first nine months of the year totalled 220 m/kgs vis-a-vis 233 during the corresponding period of last year, approx. 6% lower compared with the first nine months of 2009.

This could be attributed to higher domestic consumption.

Similarly, tea consumption in India is expected to rise to 870 m/kgs in 2010 compared to 850 m/kgs in 2009, thereby reducing the surplus for exports. As we close the year Indian tea prices are positioned to move up following the recent crop shortfall in North India which as of now totals a negative variance of approx. 23 m/kgs.

These factors combined with the customarily lower volumes during the 1st quarter would brew up a strong story for tea in 2011. Nevertheless, the optimism for the tea market in 2011 must be linked with the accent on maintaining a reasonable and consistent quality throughout the year.

Tea exports up in November

Tea exports for the month of November 2010 totalled 26.4 m/kgs vis-a-vis 23.3 m/kgs of November 2009, showing a gain of 3.1 m/kgs.  The total revenue too of Rs.13.4 bn realised for November '10 shows a gain of Rs.1.4 bn or 11.6% YoY.January-November 2010 cumulative exports of 285.9 m/kgs too show a gain of 22.4 m/kgs as against 263.5 m/kgs of 2009.  Here again, a growth of 22.4 m/kgs or 8.5% is shown.  In terms of revenue too total exports value of Rs.141 bn show a significant gain of Rs.18.6 bn as against Rs.122.4 bn of 2009.  This shows a growth of 15.1% YoY and this signifies the highest ever exports value surpassing Rs.137.5 bn achieved during January-December 2009.  Tea in bags show a growth of 7.8 m/kgs YoY whilst other main categories too have shown a growth vis-a-vis 2009.

CIS continues to be the largest importer of Sri Lankan tea and occupies the No.1 position followed by UAE and Iran.  Syria, Turkey, Jordon are the other noteworthy importers of Sri Lankan tea.

Good demand at first tea auction for 2011

The 1st sale of the year which was concluded this week had on offer 6.6 m/kgs.  There was good demand.

Ex-estate offerings totalled 1.1 m/kgs.  Overall quality showed no significant change with a greater weight comprising of fair average quality teas.  Prices for most BOPs/BOPFs were firm to marginally lower whilst the CTCs witnessed a firm to dearer trend.  The limited availability of liquoring leafy teas too were well sought after at attractive price levels.  The disappointing feature was the overall price structure for Nuwara Eliya teas which are currently selling a little above the Rs.300 per kg level.  Shippers to Japan, UK and the Continent bid selectively on a selection of better liquoring teas whilst shippers to the CIS were fairly active on a wide cross section of the offerings.  

Low growns comprising of 3.2 m/kgs in the Leafy/Tippy catalogues met with good demand this week.  In the Tippy catalogues will made FBOP/FF1s sold at fully firm to irregularly dearer rates.  Cleaner secondaries too were fully firm.  However, teas where leaf and liquors were not maintained prices were lower.  In the Leafy catalogues too better OP/OPAs together with Pekoe/Pekoe1s were fully firm to dearer.  A fair cross section of OP1/BOP1s sold at firm to marginally dearer rates.  At the lower end stalky types were irregular, however, cleaner types met with fair demand.  CIS, Iran, Dubai, Syria, Saudi Arabia together with Iraq were active this week.  (Forbes and Walker Tea Brokers)