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    Tea prices may rise in India as output likely to decline

    Synopsis

    Prices may climb 9% to an average Rs 200 ($3.2) per kg in 2015 as dry weather and pest attacks cut production, while consumption rises in a recovering economy.

    Bloomberg
    KOLKATA | MUMBAI: McLeod Russel India, the world’s biggest tea grower, predicts a rebound in profit growth from a three-year slump as declining output and stockpiles drive leaf prices to a record high.

    Prices may climb 9% to an average Rs 200 ($3.2) per kg in 2015 as dry weather and pest attacks cut production, while consumption rises in a recovering economy, chief financial officer Kamal Baheti said. The price touched an average Rs 183 a kg this year compared with Rs 168 in 2013, he said.

    “Next year looks promising,” Baheti said. “With low inventory already in the system, not only will prices remain firm for this year, opening prices for next year will be very strong even if there is normal crop next year.”

    The company is counting on higher prices to end the slide in earnings growth as geopolitical conflicts dented exports and wrecked Baheti’s earlier forecast for a 15% jump in net income for the year ending March 31. India is the world’s largest consumer of tea after China, and demand totalled 911 million kg in 2013-2014, according to Tea Board.

    McLeod’s output may decline as much as 9.8% to 101 million kg this year, while exports may drop as much as 30% to 16 million kilogram, Baheti said.

    “If we lose any further crop next year, then the prices can go anywhere,” he said.

    Signs of a recovery in India’s $1.9 trillion economy may boost demand, helping bolster local prices as well, he said.

    Tea usage in India will rise by 25-30 million kg this year, while production will decline to between 1.17 billion kg and 1.175 billion from 1.2 billion kg in 2013, Baheti said.

    Output totalled 860.2 million kg in the nine months through September.

    “So, going by a production drop and consumption growth, the industry should be lower in inventory by 35-40 million kg by year-end,” he said. A price surge in India alone may not be adequate to reverse the company’s sliding performance as input and labour costs would eat into the margins, said Jignesh Makwana, an analyst at Quantum Securities, by phone from Mumbai.


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