Rising tension in the Middle East is buing holes in the Sri Lankan tea industry as prices plummet and stocks accumulate at auctions.
Low grown teas are seeing the brunt of the Middle Easte crisis, with prices on average dropping by Rs. 20.00 in two weeks.
In addition, a backlog over 15 million kilos of teas have accumulated at auctions to suppressed demand from the region.
Continued fear of an eminent war in the Middle East held back traders from sourcing their requirements.
Asia Siyaka Commodity Brokers say the mood in the low country tea estates is slowly tuing desperate as producers dig deeper into their pockets to pay for green leaf bought from small holders.
” Declining prices and unsold teas are a dangerous combination,” Asia Siyaka officials said Thursday adding that l” private factories in particular have little to look forward to over the next three months.”
This provides buyers from other traditional markets an ideal opportunity to source their needs at very low rates.
Brokers say that ” with no settlement to the Middle East crisis seen in the short term, the market for Low Grown varieties remains uncertain.
Hope, Asia Siyaka says could come in the second quarter if a war in the Middle East is avoided as Libya is due to sign off on its 20 million kilo purchase order for Ceylon Tea.
Iraq – directly in the line of fire has indicated a probable 14 million kilo allocation to Sri Lanka under the last round of the US doctored “Oil for Food deal.
Meanwhile, in more disappointing news for the industry a dramatic drop in packet tea shipments dragged down total value added exports in 2002 to a six year low.
Value added made up 29.3 per cent of the total tea export (locally produced teas only) mix in 2002, down from an impressive 33.8 per cent in 2001.
A 15 million kilo drop in tea in packets shipment in 2002 reduced total value added exports to 36 per cent of all the teas shipped.
Brokers reported that packet tea shipments in 2002 fell to 68 million kilos last year, down from 83 in 2001.
Tea bag exports however grew to 14.1 million kilos from 13.6 the year before while, green tea crossed the one million kilo mark for the first time ever.
Asia Siyaka Commodity Brokers say a growing East Asian market was absorbing greater quantities of green tea. China in particular is fast increasing its imports of green tea for local consumption.
Meanwhile, Sri Lankas largest tea importers, Russia and CIS increased their annual intake to 24 per cent of local exports from 22 per cent the previous year.
UK and Europe accounted for 11 per cent while the America took up 4 per cent and Japan imported 6 per cent of total tea shipments.
However, total tea exports fell short of analyst forecasts of passing the 300 million kilos mark by year end, recording total exports of adding up to 291.79 million kilos and the end of 2002.
This was also short of the previous years total tea export at 294.04 million kilos. Averages export prices meanwhile, saw an increase both due to an appreciation of the dollar against the rupee and a upswing in prices.