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Tea prices flat on continuous fall in CTC rates: ICRA

The report said that while the CTC prices were negatively impacted.

, ET Bureau|
Last Updated: Jul 04, 2019, 04.14 PM IST|Original: Jul 04, 2019, 04.14 PM IST
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Tea price trends in Assam and West Bengal remained flat during Q1 of FY2020, owing to the continuous decline in CTC prices from end of April 2019, on account of significant increase in the NI crop by 18% during March and April 2019, according to an ICRA report released on Thursday.

The report said that while the CTC prices were negatively impacted, orthodox tea prices witnessed significant improvement and remained firm, backed by healthy export demand, particularly from Iran, and overall healthy export volume in the current year. Going forward, despite the uncertainty regarding exports to Iran, orthodox export volumes are unlikely to be materially impacted in the current year, given the large volumes already exported.

Commenting on the same, Mr. Kaushik Das, Vice President and Sector Head, Corporate Ratings, ICRA, said: “Given the continuous correction in CTC prices from end of April 2019, the overall NI tea prices are unlikely to improve significantly in the current year. While orthodox tea prices are considerably higher, it will provide only marginal support, given the limited volumes of orthodox teas in total NI tea production.”

ICRA further notes that the decline in CTC prices is evident more in the good category tea, while the prices of medium/low category of teas have improved, albeit marginally. This is on account of the different supply-demand dynamics across the various price points in the bulk tea industry. During April and May 2019, while the average auction prices of tea produced in the Dooars and the Terai regions (mostly producing low to medium categories of teas) have been up by ~ Rs 4/kg, the auction prices of Assam tea, considered to be of high quality, witnessed a decline of Rs 12-16/kg, reflecting better demand for low category tea in the current year till date. On the other hand, South Indian (SI) tea prices remained firm during Q1 FY2020 and increased by around Rs 10/kg during the period. Lower cropping patterns and healthy realisations of orthodox teas, which account for a higher proportion in the total production of SI teas compared to that in the NI, have driven the overall price movement at auction centres in SI.

On the production front, the overall global tea production witnessed a de-growth of 2.2% during 4M CY2019, primarily due to a fall in Kenyan and Sri Lankan crop levels. The Kenyan auction prices, which were adversely impacted during CY2018 owing to bumper tea production, continued to remain under pressure, notwithstanding a marginal improvement after April 2019. Sri Lankan weekly auction prices also continued the downtrend witnessed over the past year, largely on account of the subdued demand from major importing countries. The softer trend in international tea prices also impacted India’s export prospects, to an extent. The aggregate Indian tea export volumes remained largely stagnant during 4M CY2019, with the decline in NI export volumes largely offset by the increase in SI export to an extent. In terms of value, however, exports increased by 17.0% during 4M CY2019 to Rs. 1820 crore from Rs. 1566 crore during 4M CY2018, on the back of the healthy demand for orthodox tea.

Given the marginal tea price movement, the credit profile of NI bulk tea players would continue to face headwinds. Last year, the NI bulk tea industry witnessed significant increase in costs – particularly wages and energy costs - which impacted the financial performance in FY2019. “The industry continues to face challenges in controlling costs and any further material increase in wage rates in the near term would, in a scenario of tepid increase in tea realisations, intensify the stress on the financial performance of organised NI bulk tea players,” Mr. Das added.

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