Rupee fall a mixed bag for tea industry

The fall of the rupee is likely to bring mixed results for the tea industry, John Keells Plc said last week.
It said Sri Lanka’s Rupee fell to a record Rs. 132.20 against the dollar breaking the previous record of Rs. 131.60 on 19 March 2012.  

“The impact of the devaluation and rising energy prices will have a bearing on the cost of production and could lead to lesser profit margins. On the other hand, with the recent devaluations, Sri Lanka Tea prices have shown a steady rise from all elevations exceeding last year’s corresponding sales, but remain below in US dollar terms,” John Keells said.
“The rising demand we are witnessing could be due partly to the drop in world, black tea production in the first quarter of the year from some of the major tea producing countries,” the commodity broker added.
It also said that Sri Lanka’s tea crop of 27.2 mkgs for the month of March 2012 recorded a significant drop of 7.9 mkgs (23%) compared to 35.1 mkgs for the corresponding month of 2011.  All three elevations have recorded shortfalls with high grown in particular recording the highest deficit of 39% followed by medium at 34% and low at 10%.
The large variance particularly from the high and medium elevations could be attributed to adverse weather conditions in the first quarter of 2012. Most of the tea growing areas experienced extremely dry weather conditions in the first three months of the year, giving way to heavy afternoon showers in April.
Although the variance for the month may appear to be high, weather conditions in the first quarter of last year were ideal for growth, paving the way for a record crop of 35 mkgs in March. Incidentally, the crop harvested was the highest on record, surpassing the previous best of 32.4 mkgs in 2008.
Production in the first quarter of 2012 recorded a 6.66% deficit compared to 2011 with high grown recording a variance of 15.5%.  With most plantations reporting fairly satisfactory weather conditions for growth, the outlook for April looks promising.
The 1.1 mkgs of ex-estate teas, that came up for sale met with improved demand, particularly for BOPFs.  BOPs on the other hand were irregular and were less sought after. The better BOP/BOPFs in the Western high grown category sold in the range of Rs. 425 to Rs. 475 and Rs. 450 to Rs. 510 respectively. The bottom end of the market, however settled at Rs. 320 to Rs. 330 and Rs. 375 to Rs. 385 respectively.
Other than for a few bright Nuwara Eliya BOPs that gained Rs. 5 to Rs. 10, others were mostly firm. BOPFs on the other hand showed a drop in prices of Rs. 10. Prices for Uva BOP/BOPFs followed a similar trend to the Western with BOPFs appreciating Rs. 5 to Rs. 10.
Low grown CTC PF1s maintained last levels, whilst the BP1s advanced Rs. 10 to Rs. 20. A few high and medium PF1s advanced Rs. 10 on special inquiry, others were firm.  BP1s were firm to dearer.
The low grown average at the sale of 17 April 2012 reached Rs. 439/79 which was an increase of approximately Rs. 22, when compared with the previous week. At this week’s low grown sale, the prices for some leafy grades such as Pekoe, OP1 and select best FBOPs eased marginally, but all others maintained previous levels. However, prices could still be quoted as quite attractive.
“There was excellent demand from Russia, Libya, Iran and Iraq whilst the other Middle Eastern markets also lent useful support,” John Keells Plc added.