Tea Sector Analysis: Indian Tea Producers To Gain From Fall in Global Production.

Tea production in the country has risen 6.4% to 491.5 million kgs between January and July this year compared with the same period of the previous year, according to the data released by the Tea Board of India. Exports, however, dropped 16% y-o-y during the review period. Tea prices and production typically peak between July and October.

This year both prices and production are likely to peak to a level higher than the previous year. Despite a rise in production and a drop in exports, the average price of tea during this period has remained firm, thanks to certain bullish factors in the domestic and international markets. Dry weather condition in Kenya and other African countries during the first four months of the current year has taken a toll on global tea production.

Tea prices in India got a boost because of exports and lower production last year, depleting the inventory level. This year, though tea production is expected to be normal, lower inventory level in the country, production shortfall in Kenya and other African countries, and growing domestic consumption are likely to keep prices marginally higher than in the previous year. Bad weather conditions in south India are likely to impact tea production from the region in the near future. Persistent rainfall between August and September in the tea growing regions of south India may bring down the estimated tea production for the current year.

Tea prices in India are higher by Rs 10-15 per kg compared with the same period of the previous year. This is favourable for tea producing companies such as Mcleod Russel, Harrisons Malayalam and Jayshree Tea. Some of them have acquired tea estates in the African region. However, for tea-marketing companies such as Tata Global Beverages and HUL, a rise in production may not bring much relief. Given the competition and inflationary environment, these companies may not be able to fully pass on the burden of price increase to the consumers.

Source : economictimes.indiatimes.com