Where are tea prices headed?

In an interview with CNBC-TV18, Aditya Khaitan, MD, McLeod Russel India, spoke about the demand and supply situation in his company and sector. Date: 22 December 2010 Below is a verbatim transcript of his interview with CNBC-TV18's Reema Tendulkar and Ekta Batra. Also watch the accompanying video. Q: How is the demand and supply situation of tea currently and does it warrant a price increase now? A: We started the season this year in April with deficit of around 50 million in the pipeline inventory levels. Due to the inconsistent weather and pest activities, North India will end up with at least 15 to 20 billion short of last year. North Indian production has now come to an end. All India figures that were around 980 million last year would be close to 960 this year. There will be a drop of about 20 million with compared to last year. Our consumption growth in India is also growing at 3.5% approximately. So, to meet the consumption growth we need to produce around 30-35 million kilograms. Last year, we had a shortage of 50 million and this year it will increase to another 50 million. India has never seen a 100 million deficit in the pipeline shortage, so we expect the opening levels to be very strong. This has already reflected in the pricing. Up to the end of December, we are averaging 10 to 15% higher than what we were currently last year. Q: Has the price increase currently been factored in and you do not see any increase from now? A: Last year this time onwards, the price of tea in the auction had come down, while this year we see weekto-week difference compared to last year of Rs 10 to 15 higher. In the winter season, the price of tea is expected to move up. In March, the opening level will be at least 15 to 20% higher than what it opened this time in the month of April. Q: How exactly the global situation is panning out in terms of a supply and demand scenario? A: The global scenario this year with Africa and Sri Lanka together, were close to 100 million ahead than last year. Both the countries were hit by draught last year. This year, Africa is ahead by around 70 million and also has a huge increase of around 70 million kilograms. In spite of that, the cumulative price in the Mombasa market in Africa is higher than last year. Mombasa was ahead by close to 40 cents over the last three weeks. The same is the situation with Sri Lanka. There is a general depletion in the inventory levels worldwide. Together, with the overseas market and the internal market, the auction centres are tending to move up in prices.

Q: How do you expect to end the year with realisations for McLeod as the crunch in North India increased on a QoQ basis in Q2 FY11? A: We in McLeod Russel have been able to withstand the drop in the crop. Our drop percentage is much lower compared to other companies as we are hedged all over Assam. In spite the decrease in production, our contribution this year in India should be higher than last year. We have added Uganda into our consolidation and 16.5 million kilograms of Uganda would come in this year. We will bring in a contribution of about USD 12 million and so will Vietnam which is around USD 4.5 million. From a consolidated basis, we should do exceedingly well this year compared to last year. Q: Could you give in any rough figure in terms of revenues consolidated? A: Last year, we hit a contribution before interest of around Rs 320 crore, we would be touching around Rs 400 crore this year, consolidated with Africa, Vietnam and India.

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