Market for Sri Lanka tea seen buoyant in 2017
ECONOMYNEXT – A global tea production shortfall and recovery in key export destinations should keep the market for Sri Lankan orthodox tea buoyant in the first half of 2017, Forbes & Walker Tea Brokers said.
With the exception of Sri Lanka, tea crops in all other producer countries have grown in 2016 from the year before, the brokers said in a report on the market this year and outlook for next.
Global production statistics up to end-November 2016 show a gain of about 58 million kilos in 2016 compared with 2015. Sri Lanka had a deficit of 40.8 million kilos up to end-November 2016.
“The significant feature, however, is that almost all of these increases comprise of CTC (crush, tear, curl) origin,” the brokers said. CTC tea is used mainly in tea bags.
“Taking into account the carried forward deficit in orthodox tea production, it would be reasonable to conclude the total shortfall to be in the region of 50 million kilos (of orthodox teas), a considerable deficit,” they said. “The year 2017 would begin with a distinct shortfall of orthodox teas globally.”
Sri Lanka’s tea production in 2017 would depend on factors like the current weedicide policy, and the removal of the fertiliser subsidy and their impact on production, Forbes & Walker Tea Brokers said.
They said they expect the tea market to remain buoyant for several reasons.
Improved consumption by producer countries has in the recent past resulted in less tea available for export.
Sri Lanka’s key export destinations, whose buying was seriously impacted owing to political problems, currency depreciation and economic sanctions, are all showing signs of recovery “with a more positive outlook expected in 2017,” the brokers said.
Greater stability in crude oil prices which are anticipated to reach US$60 a barrel next year from $50 today should see improved demand from oil producing countries.
The likelihood of a further weakening of the rupee against the US dollar would make Sri Lankan tea more affordable, the report said.
Global tea production in the first quarter of the year is usually low in all major producer countries including Sri Lanka which experiences its Western quality season during this period and attracts additional demand for seasonal quality teas.
India and China are seeing steady growth in consumption owing to increases in population and rising per capital incomes.
“Considering these market conditions and in particular the supply restriction of orthodox teas, it would not be too optimistic to project a buoyant market for the first half of 2017,” Forbes & Walker Tea Brokers said.
But the brokers said Sri Lankan firms would have to raise productivity and reduce costs on tea estates to become more competitive and profitable.
(COLOMBO, Dec 23, 2016)