Tea Crop in India Damaged by Pest Attack; Prices Gainhttp://www.businessweek.com/news/2010-0 ... -gain.html
July 15, 2010, 2:03 AM EDT
July 15 (Bloomberg) -- Tea production in India’s biggest growing region will decline this year because of pest attacks, driving prices higher, the state-run Tea Board of India said.
Output in Assam, which accounts for more than half of the country’s production, may drop 30 percent to 40 percent during the so-called second flush, Basudeb Banerjee, chairman of the board, said in a phone interview from Kolkata yesterday.
A smaller crop may widen a shortage in the world’s largest user of the beverage after China, and lift profits at producers McLeod Russel India Ltd., the world’s biggest, and Jayshree Tea & Industries Ltd. Prices at auctions in India’s northeast states have climbed as much as 15 rupees per kilogram (2.2 pounds) in the past two weeks and will likely stay firm, Banerjee said.
“Prices will sustain for the next one quarter or so,” Anup Ranadive, an analyst at Tower Capital & Securities Ltd., said in Mumbai. “Most tea producers will have strong gains in profit in the fiscal second quarter” ending Sept. 30.
McLeod’s shares advanced as much as 3.3 percent to 220.50 rupees in Mumbai. The stock, which surged more than five times in 2009, may reach 250 rupees, said Ranadive, who has a “buy” recommendation on the company. Jayshree Tea gained as much as 4 percent to 301.4 rupees, the highest in more than three months. Harrisons Malayalam Ltd. gained 3 percent to 136 rupees.
Production in Assam fell 11 percent in May to 28.5 million kilograms from a year earlier, data from the board showed. The second flush pickings are typically the best-quality leaves that fetch a premium from buyers overseas.
“There’s been excess rainfall in June, leading to a pest attack,” the board’s Banerjee said. “This will have an impact on production even in July and August.”
India’s output will be less than 979 million kilograms last year, Banerjee said. Production in the five months ended May 31 rose 9 percent to 234.9 million kilograms, the board said.
A smaller harvest may increase the domestic shortage by 25 percent to as much as 75 million kilograms by the end of 2010, Aditya Khaitan, managing director of McLeod Russel, said in June. A 100 percent tax on imports curbs supplies to the market where demand is growing at 3.5 percent annually, he said.
Shipments of premium tea to buyers in Europe and the U.S. may decline this year, Banerjee said. Exports of all grades in the five months ended May rose to 71.2 million kilograms from 59.6 million kilograms a year earlier, the board said.
A rebound in production in Kenya and Sri Lanka, the biggest exporters, may keep local prices from rallying, Banerjee said.
“Production is pretty much at last year’s level in countries like Sri Lanka and Kenya,” he said. “So there may not be a huge increase in prices.”
The average price of African tea declined to $2.12 per kilogram (2.2 pounds) at the world’s biggest auction in Kenya’s port city of Mombasa. The average price dropped from $2.16 at the previous sale, Tea Brokers East Africa Ltd., said in an e- mailed report from Mombasa yesterday.