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Monday December 5th, 2022

Sri Lanka tea, rubber estates suffer massive losses amid falling commodity prices

COLOMBO (EconomyNext) – Falling international commodity prices due to an underlying strengthening of the US dollars has hit Sri Lanka’s plantations firms which has lost 2.8 billion rupees in the past year on tea and rubber.

By the end of 2014, 19 regional plantations companies said they lost an average of 30 rupees per kilogram of tea sold with an average cost of 455 rupees and a net sales average of 455 rupees.

The loss on a kilogramme of rubber was 35 rupees, with average cost of production at 327 rupees and net sales average of 292 rupees, they said.

Classical economists have forecasted earlier that a ‘Great Moderation 2.0’ of low commodity prices could be emerging  with the end of excessive money printing by the US Federal Reserve which sent gold, oil, steel, copper, and food commodities zooming despite the bursting of a credit bubble in 2009. (Great Moderation 2.0: The Russian ruble, Sri Lanka’s tea and rubber: Bellwether)

Great Moderation 1.0 occurred in the 1980s with monetary tightening by then US Fed Chief Paul Volcker in 1980 with gold at 250 dollars and oil below 20 dollars a barrel.

It lasted until the 2000, when the US Fed created the ‘mother of all liquidity bubbles’ which burst in 2009 generating the Great Recession.

But instead of slipping immediately into a period of low inflation from 2009, quantity easing programs of the US Fed again fed a commodity bubble and inflation, which some economists say ended the possibility of a ‘v shaped recovery’ and delayed an overall recovery.

But now quantity easing programs have been ended and tighter banking sector rules and capital requirements have made credit tighter, though the effects of EU monetary loosening remains unclear.

A stronger dollar has set off a chain reaction, reducing the disposable incomes of countries with mining and oil interests and increasing the disposal incomes of other nations. Farming incomes are also falling in all countries.

Due to wage rigidities organized businesses find adjustments difficult, though food and fuel prices fall, increasing the disposal incomes of workers. In modern settings, where cutting wages is politically not feasible, currency depreciation tends to be the option.

Roshan Rajadurai, Chairman of the Planters’ Association of Ceylon – which represents the Regional Plantation Companies (RPCs) said large quantities of tea remain unsold at auctions and companies had to borrow to pay wages.

The auction average in Colombo in February 2015 has fallen 64 rupees from a year earlier to 418 rupees, the regional plantations companies said.

Sri Lankan tea prices were still higher and ranges around 3 dollars a kilo compared to 2.0 dollars for countries such as Kenya, the RPC said.

In Sri Lanka labour accounted for 67 to 70 percent of total costs.  The RPCs said a worker plucked about 18 kilograms a day in Sri Lanka, compared to 38 kilograms in India and 48 for a Kenyan plucker. However the codditions of the fields, steepness of tea fields and the degree of mechanization could impact plucking averages.

Sri Lanka’s government which has promised guaranteed prices for tea and rubber though it is not clear how this will be financed.

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Paris Club proposes 10-year moratorium on Sri Lanka debt, 15 years of debt restructuring

ECONOMYNEXT — The Paris Club group of creditor nations has proposed a 10-year debt moratorium on Sri Lankan debt and 15 years of debt restructuring as a formula to resolve the island nation’s prevailing currency crisis, India’s The Hindustan Times reported.

While the Paris Club has yet to formally reach out to India and China, Colombo has yet to initiate a formal dialogue with the Xi Jinping regime, the newspaper reported on Saturday December 03, inferring that the chances of the International Monetary Fund (IMF) approving its 2.9 billion dollar extended fund facility for Sri Lanka in December now ranges from very low to nonexistent.

“This means that Sri Lanka will have to wait for the March IMF meeting of the IMF before any aid is extended by the Bretton Woods institution,” the newspaper reported.

“Fact is that for Sri Lanka to revive, creditors will have to take a huge hair cut with Paris Club clearly hinting that global south should also take the same cut as global north notwithstanding the inequitable distribution of wealth. In the meantime, as Colombo is still to get its act together and initiate a dialogue and debt reconciliation with China, it will need bridge funding to sustain the next three month before the IMF executive board meeting in March 2023. Clearly, things will get much worse for Sri Lanka before they get any better—both economically and politically,” the report said. (Colombo/Dec04/2022)

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Sri Lanka’s Ceylon tea prices up amid low volumes

ECONOMYNEXT – Sri Lanka tea prices picked up at the last auction in November amid low volumes, brokers said.

“Auction offerings continued to record a further decline and totalled 4.2 million Kilograms, of which Ex-Estate offerings comprised of 0.6 million Kilograms. There was good demand,” Forbes and Walker Tea brokers said.

“In the Ex-Estate catalogues, overall quality of teas showed no appreciable change. Here again, there was good demand in the backdrop of extremely low volumes.”

High Growns

BOP Best Westerns were firm to 50 rupees per kg dearer. Below best and plainer types were Rs.50/- per kg easier on last.

Nuwara Eliya’s were firm.

BOPF Best Westerns were firm to selectively dearer. Below best and plainer teas declined by 50 rupees per kg.

Uva/Uda Pussellawas’ were generally firm and price variances were often reflective of quality with the exception of Select Best Uva BOPF’s which were firm and up to 50 rupees per kilogram dearer.

CTC teas, in general, were mostly firm.

“Most regular buyers were active, with perhaps a slightly more forceful trend from the local trade,” brokers said.

Corresponding OP1’s met with improved demand. Well-made OP/OPA’s in general were fully firm, whilst the Below Best varieties and poorer sorts met with improved demand. PEK/PEK1’s, in general, were fully firm to selectively dearer.

In the Tippy catalogues, well-made FBOP/FF1’s sold around last levels, whilst the cleaner Below Best and cleaner teas at the bottom appreciated. Balance too were dearer to a lesser extent.

In the Premium catalogues, very Tippy teas continued to attract good demand. Best were firm to selectively dearer, whilst the Below Best and cleaner teas at the bottom appreciated

Low Growns

Low Growns comprised 1.8 million Kilograms. Market met with improved demand, in general.

In the Leafy & Semi Leafy catalogues, select Best BOP1/OP1’s were fully firm, whilst the Below Best/bolder BOP1’s were barely steady.

Low-grown teas, farmed mainly by smallholders and exported to the Middle East and Central Asia, are the most sought-after and expensive Ceylon Teas.

Low-grown CTC prices have gained this week to 982.80 per kilogram this week from 934.76 per kilogram last week.

Few Select best BOP1s maintained, whilst best and below best were irregularly lower. Poorer types maintained.

BOPF’s in general, firm market.

FBOPF/FBOPF1’s select best and best increased in value, whilst the below best and bottom held firm.

Selected best BOP1’s maintained, whilst best and below best were irregularly lower.Poorer types maintained.

OP1’s selects best together with best and below best were firm to dearer. Poorer sorts were fully firm.

Medium Growns

BOPF’s, select best gained by 50 rupees per kilogram. Others maintained.

BOP1’s select best dearer by 100 rupees per kg whilst all others moved up by 50 rupees per kg.

OP1: select best gained by 100 rupees per kg whilst all others dearer by 100 rupees per kg.

OP/OPA’s in general, dearer by 50 rupees per kg whilst the poorer sorts were firm.

PEK’s Select best gained by 50 rupees per kg whilst all others maintained. PEK1: In general, dearer by 50 rupees per kg. (Colombo/Dec 04/2022)

 

 

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Sri Lanka Ports Authority East Terminal contractor paid: Minister

ECONOMYNEXT – Sri Lanka’s Ports Authority had paid a deposit for a gantry crane and made the required payment for the contractor to complete building the East Container Terminal, Minister Nimal Siripala De Silva said.

The East Container Terminal, a part of which is already built is being completed as a fully SLPA owned terminal at a cost of 480 million dollars Ports and Shipping Minister de Silva said.

“ECT we are funding with money available in the ports authority,” he said.

“Up to now we have paid an advance for the gantry crane. And for the construction we have paid all the money agreed with the contractor. So that is going on well.”

Sri Lanka is undergoing the worst currency crisis in the history of the island’s soft-pegged (flexible exchange rate) central bank which has created difficulties in funding the project.

“Every penny we collect as dollars we are keeping them separately and utilizing that for the Eastern Terminal work,” Minister de Silva said.

“We are confident that the ECT will be completed within the envisaged time. It is a difficult task in view of the dollar problem.

Banks were also not releasing the dollar deposits of the SLPA earlier but are now doing so, he said.

“Our deposits in banks they have utilized for urgent other national purposes,” he said.

“So they are releasing that money slowly. I am happy that they are releasing that money little by little. So with that we will be able to manage that.”

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