Oil price recovery seen reviving demand for Sri Lanka tea

ECONOMYNEXT – The recovery in crude oil prices after big producers agreed to cut production should augur well for Sri Lankan tea, demand for which has revived given a shortfall in crops and the onset of winter buying, a top tea trader has said.

Prices at the Colombo auctions have risen in recent weeks after a prolonged slump that was part of the global collapse in commodity prices.

But global tea trading company Van Rees said the outlook for Sri Lankan tea looked better with demand expected from major oil producing countries now that oil prices have recovered.

“In Sri Lanka, it seems the only way is up, this week’s auction again traded firm to dearer with only some seasonal High Grown teas trading easier,” the company said in a report.

“Relative stable currencies in Ceylon tea drinking countries, a firm mineral oil market and the start of winter buying make the demand side very healthy. Bright and dry weather conditions and trade union actions create a tight supply situation.”

Van Rees said most of the tea growing areas in Sri Lanka are facing severe droughts, with no signs of improvement expected until mid-October.

August had the lowest monthly tea production of 2016, with the total production in the year-to-date the lowest since 2009.

“This, combined with excellent demand, created a firm to dearer market for all grades,” Van Rees said.

It said the deal by the Organization of the Petroleum Exporting Countries (OPEC) to limit production and the expected oil price increase should support the buying power of traditional Sri Lankan tea buyers.

Crude oil prices have recovered to around $50 a barrel on expectations of a production cut after OPEC, led by Saudi Arabia, agreed last month to cut production to around 32.5 to 33 million barrels per day.

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Oversupply had sent oil prices from $115 a barrel in June 2014 to as low as $27 in January this year.
(COLOMBO, Oct 11, 2016)

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