Adverse developments in key tea buying countries spill into 2015, top broker says
View(s):The Colombo tea auction though performing better than all other auction centres in 2014, reported a weak fourth quarter performance, Asia Siyaka Commodities PLC said in its tea outlook for 2015 and review of 2014.
The commodities broker said that “contrary to the previous pattern of price decline for low growns in Q1, we expect the market to hold during this period with some strengthening of categories as deferred orders come in”.
It said given the volatile conditions in key importing markets, short-term price fluctuations would be a factor throughout the year.
“Maintaining quality would be critical and we believe that teas not meeting these standards would be heavily discounted more so than in previous years,” the report said.
On the performance in 2014, Asia Siyaka said that available data for 2014 shows that high levels of production (seen in 2013) had been continued.
The report said Sri Lanka is ‘almost’ a unique supplier of High-end Orthodox Black Tea and is sheltered to a great extent from increased supply of CTC Teas. The market for small leaf high growns however, is more vulnerable particularly at the lower end of quality.
“In 2013 Sri Lanka achieved a highest ever crop of 340 million kg and 2014 would be around the same level. All things being equal 2015 should see a similar volume produced. A caveat would be the continuation of the fertiliser subsidy and the absence of disruption due to wage negotiations with RPCs scheduled for end Q1 of 2015.
Globally, in Q4 2014 and Q1 2015 climate change was initially projected in the Southern Hemisphere where most tea is produced. The relevant tracking centres have since reduced the probability significantly,” the report added.
On demand, the broking firm said Sri Lanka has been affected by developments in key markets like Russia, Iran, Saudi Arabia, Iraq and Kuwait and to a lesser extend Libya and some of the Gulf countries. “The impact on their currencies and other domestic factors resulting from a sharp drop in national income could be significant; if oil prices continue weak in the medium term. Additionally social unrest in Syria, Ukraine and Libya has already had its impact on tea prices at the Colombo auctions,” the report said.