Tea Prices Firm Up As Demand Supply Equation Remains Tight 

Global tea prices continue to remain firm despite the increase in production in last calendar year as a strong supply response to high prices was witnessed. Lower production in India due to weather related troubles coupled with high global prices have boosted tea prices in Indian markets as well and going forward the commodity is expected to remain bullish for at least another couple of quarters.

In fact global tea prices have been quite volatile in the past two years, with prices in 2008 and 2009 respectively swinging within a 25-30% price range. The average growth in prices in 2010 was again over 10%. High prices yielded a strong supply response as well. While there were wide swings, on the whole tea prices have remained relatively strong in historical context in both Indian and global markets.

The industry has remained firm even as global production increases. It was apprehended that strong supply response to high prices of the commodity seen last year will bring down prices this year. However, production in India has been somewhat lower in 2010 owing to weather related problems. The trend has not changed in 2011 wither and production was down in the month of January as well. Although the decline in production has been small, given the continued increase in domestic demand, prices have remained firm.

Looking at the global scenario, markets continue to remain in deficit mode following the sharply lower production in 2008. While there has been strong growth in production in 2010 which hit record high level of 320 million KG, the sharp increase was on a low base of 2009 and has failed to increase stocks much. Compared with production in 2008, the increment in global production is just over 2%. World tea stocks continue to remain at record low levels and have been supporting prices in both Indian and global markets.

Analysts believe there is around 100-120 million kg deficit in the global market which has been continuing since the poor crop of 2008. Even with strong production outlook of Kenya and Sri Lanka, prices have been firming up mainly because of this deficit as well as rising consumption. Looking back at India too there was a shortfall of around 50 kg in 2009 and in 2010 the shortfall has only increased. Overall therefore it seems that near term outlook for tea prices is quite strong as global markets struggle under deficit stocks