A tea shortage in India may worsen as pest attacks damage plantations, lowering output and boosting prices, according to the world’s biggest tea-growing company.
Output in India, the top grower after China, may be less than last year’s 979 million kg after excess rain hurt tea shrubs in northeast states, which account for more than 70 per cent of production, Aditya Khaitan, managing director, of McLeod Russel India Ltd., said in an interview on Wednesday.
Reduced supplies may increase costs for companies including Unilever Plc and Tata Tea Ltd., owner of Tetley brands, and lift earnings at producers McLeod and Jayshree Tea & Industries Ltd. Prices reached a record at the world’s biggest auction centers last year after dry weather in Kenya and Sri Lanka cut output.
“It may be a good time to get into tea stocks for short- term gains as prices of good quality tea will start to inch up now,” said Anup Ranadive, an analyst with Tower Capital & Securities Ltd. “Last year it was drought that pushed up prices and this year its rain.”
A smaller harvest may increase the domestic shortage by 25 per cent to as much as 75 million kg by the end of 2010, Khaitan said. A 100 per cent tax on imports curbs supplies to the market where demand is growing at 3.5 per cent annually, he said. “The market will feel the shortage in the coming months and the trend is looking positive for prices,” he said. “We’ve seen the high point of production and low point of prices.”
The average tea price was $2.43 a kg at the weekly auction held in Kenya’s port city of Mombasa on June 14 and 15, 18 per cent more than the $2.06 a kg a week earlier, African Tea Brokers Ltd. said June 18.
In India, prices have risen by Rs 15-20 a kg from a year ago as producers cover their future needs by purchasing at auctions, Khaitan said. Overseas sales may fall by 10 million kg to 15 million kg from last year’s 191 million kg as local demand and prices gain, he said. Production in the four months through April has risen 12 per cent to 162.3 million kg and the trend will reverse in the coming months, Khaitan said.
