Demand for Sri Lankan tea could remain depressed: Brokers


June 8, 2015 (LBO) – The demand for Sri Lankan tea will remain depress in the future pertaining issues in the important tea export destinations, a leading broking house said.

“The demand for tea could remain depressed in the short term due to issues across some of the key export destinations for Sri Lankan tea,” Susantha Ratnayake, Chairman/CEO of John Keells Plc said in the company’s annual report.

“The performance of the Russian market in particular will be a critical factor for the Sri Lankan tea industry as the weakened Ruble will continue to exert pressure on export volumes,”

However, Rathnayake says the growing demand from Egypt and the expected shortfall in tea production in countries such as India and Kenya is likely to help mitigate the negative impact on global tea prices.

Sri Lanka’s tea prices fell in May at the Colombo auctions with the auction average for May 2015 fell 17 percent to 396.55 rupees a kilo from a year ago,

Analysts say Sri Lankan tea industry is affected by issues in key markets like Russia and the Middle East.
The High Grown average fell by 52.53 rupees to 364.58 rupees a kilo and Medium Growns fell by 65.68 rupees to 355.74 rupees.

Low Grown teas, fell by 93.93 rupees to 422.41 rupees a kilo in May 2015 from a year ago.

The company says even the year 2014, the industry was affected with growing dependence on Russia as the principal market for High-grown Black teas, while Iran and Turkey remained the leading markets for Low-grown Sri Lankan Teas.

“The steady pace of growth was disrupted by unforeseen global geopolitical undercurrents which left the local tea industry reeling in the latter part of 2014.” The Company’s annual report reads.

“The collapse of the Russian Ruble in early November 2014, was a crushing blow that led to a swift decline in the price of High-grown Tea,”

Meanwhile, the prospects for Low-grown Sri Lankan Tea also took a hit following the economic sanctions imposed on Iran, amidst escalating political tensions in that country.

“Moreover, weakened by the drop in world crude oil prices towards the end of 2014, many key oil producing nations,
including Russia and Iran struggled to stave off recessionary pressures by cutting back on their imports, a decision that had a direct impact on Sri Lanka’s Tea industry.”

With the brunt of the impact coming in the early months of 2015, the market price for Ceylon Tea fell by more than 30 percent within the space of two months leaving many estates in dire straits, the company said.