2012 tea exports resilient as Iran sales fall.

MUMBAI: 2012 tea exports are likely to remain steady at last year's level despite negligible sales to Iran as poor output in other key producing countries ensure strong demand, a senior executive at the world's biggest tea producer said.

The country's exports to Iran, a key traditional buyer, started falling from 2011 after India's central bank ended a long-standing payments mechanism the two countries had used to settle trade under U.S. pressure.

"Exports to Iran are down ... but global production is lower. So I think demand will be there. We will be able to export as much as we exported last year," Kamal Baheti, chief financial officer at McLeod Russel, told Reuters in an interview.

The world's second-biggest tea producer has recently allowed exporters to settle payments with Iran using the rupee, but so far it has failed to have any meaningful impact on tea exports.

The south Asian country had produced a record 988.3 million kg tea in 2011 and exported 192.87 million kg.

India exports CTC (crush-tear-curl) tea mainly to Egypt, Pakistan and the UK, and the premium orthodox variety to Iraq, Iran and Russia.

The country is likely to produce less tea in 2012 than last year on dry weather in key producing areas and the shortfall is likely to keep tea prices at a higher level in India and even in the world market, Baheti said.

"Weather is currently okay. But whatever loss was there due to bad weather, I don't think that can be recovered," Baheti said.

Dry weather in the north eastern Assam state, the country's top producer, trimmed production in the first four months of 2012 by over 14 percent from a year ago.

"Like India, everybody has lost crop this year. Kenya is down, Sri Lanka is down. African countries are down. World production is down by more than 50 million kg till April," Baheti said.

He forecasts tea prices would stay at higher levels in the next few months.

Sri Lanka's tea production fell 8.4 percent in May from a year earlier, the fourth straight month of lower output.

Uganda's tea production is forecast to drop 8 percent this year, while Kenya' tea output for the first three months of 2012 fell 15 percent on the year.

In India, the average tea price was 138 rupees ($2.42) per kg in the latest auction, up 30 percent from a year ago.

The average price of top grade tea sold at Kenya's regular weekly auction rose for the second straight week to $3.77 per kg from $3.64 per kg last week, traders said on Tuesday.

Demand for Indian tea from European countries is strong despite the financial crisis there, Baheti said.

McLeod Russel, which has tea gardens in India and African countries such as Uganda, expects its production in the current financial year ending March 31, 2013 to remain stable at last year's level of 102 million kg.

The Kolkata-based company, however, is forecasting an improvement in margins due to higher tea prices, Baheti said.

"We expect the tea price should be higher than the rise in production cost. That should improve the margins."

The jump in tea prices is likely to help other Indian tea producers like Jay Shree Tea & Industries, and Harrisons Malayalam .

The supply situation in India is likely to remain taut in coming years as well, as annual tea consumption in the country is rising by 2.5 percent per annum, surpassing the growth rate in production which is tiny, Baheti said.

Source : economictimes.indiatimes.com