Tea industry concerned over Russian rouble’s steepest drop of 11% in 16 years

Wednesday, 17 December 2014 00:48 -     - {{hitsCtrl.values.hits}}

The rouble’s sharpest plunge in 16 years by 11% yesterday caused a fresh round of concern within the tea industry over prospects in the biggest market, Russia. The rouble plunged more than 11% against the dollar on Tuesday in its steepest intraday fall since the Russian financial crisis in 1998 as confidence in the Central Bank evaporated after an ineffectual rate hike. The rouble opened around 10% stronger against the dollar after the Central Bank unexpectedly raised its benchmark interest rate by a hefty 650 basis points to try and halt the currency’s slide, but it reversed gains in volatile trade and repeatedly set new record lows. It has now fallen close to 20% this week, taking its losses this year against the dollar to over 50% and raising memories of the crisis in 1998 when the currency collapsed within a matter of days, forcing Russia to default on its debt. Ceylon Tea Brokers said with the decline of oil prices from the previous $ 100 per barrel to less than $ 60 per barrel yesterday, it is anticipated to have an adverse impact on the Russia and Iranian economies where the main income earners are crude oil and natural gas exports. “Russia and Iran being two of the top export destinations for the Sri Lanka teas (No. 1 and No. 3 in terms of rank), the decline of oil prices and the rouble devaluation would have a direct impact on the auction prices,” a spokesman for Ceylon Tea Brokers said. Last week John Keells Ltd. said the fall of Russian rouble has affected the export value of Ceylon Tea. “It has affected the buying power of the Russian tea importer. The delayed payments and limited participation during the peak buying season has resulted in prices declining further,” John Keells said. However, despite these issues, export volumes to Russia are down only by 0.3% for the first 10 months of the year compared to 2013. This week John Keells said the 3.5 million kilos of Low Growns that came under the hammer declined further in prices, following the uncertainty of the Russian currency. “In the recent past, prices of tea on supermarket shelves in Russia has increased sharply, hence the lower demand,” it said. John Keells also said there was limited inquiry from Russia and Iranian buyers too was subdued whilst Iraq, Libya, Syria and Turkey lent fair support. It also said this week’s total auction offerings recorded an increase and totalled 7.44Mkgs. Demand was steady with better teas attracting buyer interest at the opening but was irregular and unsteady as the sale progressed. Ex-Estate offerings comprised of 1.2Mkgs met with irregular demand. Overall quality of teas from the western planting districts showed a slight decline, whilst the Nuwara Eliyas together with Uva/Udapussellawa showed no significant change. Select Best Western High Grown BOP/BOPFs were dearer, whilst the below best types were irregular. The poorer types, however, were less sought after. The Nuwara Eliyas were firm on last levels. The Uva/Udapussellawa BOPs were lower following quality; consequently the BOPFs too followed a similar trend. Select Best Low Grown CTC BP1s were lower by Rs. 10 to Rs. 15. The corresponding PF1s were lower by Rs. 20 to Rs. 30. High and Medium Grown CTCs met with poor demand. BP1s were mostly firm on last levels, whilst the PF1s declined by Rs. 20 to Rs. 30 with a number of invoices remaining unsold. Reuters reported that the rouble has been hit by the slump in oil prices and Western sanctions imposed over Russia’s involvement in Ukraine, but its sharp decline over the past two days also reflects declining confidence in the Central Bank. The 650-basis-point rate hike, less than a week after another 100-basis-point rise, was seen as a sign of desperation by the bank, whose Governor Elvira Nabiullina now appears powerless to stop the currency’s slide, raising the risk of capital controls. The market ignored Nabiullina’s comments on Tuesday that the rouble was undervalued. President Vladimir Putin has blamed both the slide in oil and the rouble on speculators and the West. A weak rouble poses a major test for Putin, since his popularity in part depends on his reputation for guaranteeing prosperity and stability, and it stokes inflation. Brent crude prices fell below $ 60 on Tuesday for the first time since July 2009, hurting the outlook for Russia’s oil-dependent economy, which the central bank says is likely to contract early next year. The Central Bank has spent over $ 80 billion defending the rouble this year, including more than $8 billion since it floated the currency in November. The country still has ample reserves of around $ 416 billion but analysts say the currency is in dangerous territory as it is increasingly being driven down by sheer panic.