Tea prices expected to surge 46%

Khaitan group sees prices at Rs 110-115 a kg on Kenya drought and buoyant local demand

The Brij Mohan Khaitan group, the world's largest bulk tea producer, is expecting its first flush tea prices to be in the range of Rs 100-115 a kg, an increase of 46 per cent over the peak period in 1998-99.

With the drought in Kenya and a higher domestic consumption, Deepak Khaitan, vice-chairman, McLeod Russel (India), is looking at the new season opening at Rs 100-115 a kg.

Khaitan's comment assumes significance since the company now produces 70 million kg "" post-acquisition of Williamson Tea Assam and Doom Dooma "" and wields better negotiating power in the market.

The bullishness stemmed from the notion that the new season would start on a clean slate with no carryforward stocks. So much so that three auction centres in north-east India "" Kolkata, Siliguri and Guwahati "" would not hold further auctions in February and March, owing to depleting stocks.

Khaitan expects the average for the year to be around Rs 95 a kg and to close the current season at Rs 80 a kg.

His price outlook for the company's gardens was largely based on the drought in Kenya, which was likely to result in a crop loss of 25 per cent and was expected to divert a lot of India exports.

Last year, the industry saw a record production, which was absorbed in the domestic market, giving a fillip to the notion that domestic consumption had gone up. The absorption of higher crop was despite lower exports to the tune of 13.2 million kg during January to November.

Also, last year's production levels were unlikely to be repeated this year and with higher domestic consumption and a buoyant export market, Khaitan expects prices to move up significantly.

The McLeod Russel and Williamson Tea Assam combine last year exported around 20 million kg and is hoping to increase the quantity to 25-28 million kg this year. Apart from the traditional UK markets, the group was also getting enquiries from Egypt and Pakistan.

Khaitan said towards October-November, the group was anticipating the average selling price to increase by Rs 8 a kg, but that was much before the Kenyan drought had been factored into the system.

Merits mention the euphoria in the tea market is a repeat of 2005 with exception of the Kenya angle. Last year started on a clean slate and was expected to be a boom year until extra crop made its way into the market in March. Ultimately, the reversal in prices happened only in October.