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World tea production & price forecast.

World tea production & price forecast

The recovery in world production has continued in the first quarter, with record crops reported in several of the main growing areas. About one year ago there was the threat of a major shortfall, according to the Economist Intelligence Unit - World Community Forecasts.

Now, stimulated by persistently helpful weather conditions and by the prospect of better profits from the generally firm market, growers are turning out remarkable increases in tonnage. In the four months October 1989 to January 1990, production forged ahead by eight percent against the same period in 1988/89.

Sri Lanka has benefitted from an outbreak of peace in the southern part and confidence is gradually returning to the tea estates there. Production in January and February was more than 30 percent ahead of last year, at tonnage levels not seen since 1985. The government seems to have gained the upper hand for the time being over various JVP leaders, although fighting continues in the northern, Tamil dominated areas.

South India, too, made up considerable ground in January and February, improving by about 30 percent. North India was roughly level. Kenya goes from strength to strength, producing another record tonnage - 23 percent up the same period against last year and 50 percent up compared with 1985. In 1989 both Sri Lanka and South India were affected by drought. Elsewhere, crops have been fairly similar to last year's, though Bangladesh fell away with the season ending early.

On the demand side, there was a lull in several markets immediately after Christmas, occasioned perimarily by Soviet withdrawal from markets in Jakarta, Mombasa and Colombo, although this was to some extent made up for by a stronger Middle East presence. However, the USSR reentered by the end of January in full force, and remained throughout February in nearly all major markets.

Iraq, Sudan and Pakistan were also very active - notably in Mombasa where, despite a pause in U.K. buying, sales have reached record proportions. Only Malawi encountered a slowdown, probably as a consequence of the large volume of plain CTC tea on offer there. Demand in London eased at the end of February.

Prices have been very variable. As mentioned in The Economist Intelligence Unit's last forecast, markets offering plain CTC teas are not enjoying the firm prices being paid for orthodox teas. While there is adequate tea in total to meet demand, especially with the record first two months' production, there has been an imbalance between CTC (especially plains) and orthodox, the latter being the preference of the USSR and the Middle East. So, although there has been a sharp fall in London, and a slight fall in Mombasa, both Colombo and Calcutta have been very firm. Composite prices reflecting all markets would show a level some 10 percent above the London auction on its own.


Supply prospects continue good after the promising first quarter, but there could be some restriction later on in the year. Everything depends upon the weather in the second half. For the present, The Economist Intelligence Unit retains their forecast of a 70,000 ton increase in world production in 1990. If this occurs, the imbalance between CTC and orthodox should gradually correct itself. The total crop for the first quarter of 1990 could be as much as 30,000 tons more than 1989.

As to demand, they forecast in February that Soviet buying would be maintained at 1989's phenomenal 220,000 ton level: all the signs to date are that they will be right. Indeed, the USSR could seek even more from Kenya and Sri Lanka. There is also demand potential in other Eastern Bloc countries. Poland imported over 33,000 tons in 1988 - equivalent to one cup per caput per day, while Romania imported only 300 tons - equivalent to five cups per caput per annum.

Overall, they see no reason at present to alter their 1990 demand prediction of 1.71 mn tons.

Generally firmer prices are the consequence of the supply/demand outlook. The London auction is not likely to go much lower provided it does not become overburdened with plain Malawis. With Sri Lankan volume increasing and the Assams coming later in the year an improvement in average quality, and hence in prices, can be expected.

Looking further ahead to September 1991, there must be the prospect of supply coming into direct balance with demand, causing some weakening of prices.

TABLE : Tea: supply and demand(a) ('000 tons; % change in brackets)
 1988 1989 1990 1991
Supply 1,634 1,621 1,690 1,745
 (1.5) (-0.8) (4.3) (3.2)
Demand 1,605 1,710 1,710 1,750
 (1.5) (6.5) (-) (2.3)

(a)Black tea in the world traded market (ie world export trade plus home consumption in India, Sri Lanka, Indonesia, Bangladesh and East Africa).
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Publication:Tea & Coffee Trade Journal
Date:Jun 1, 1990
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