Ceylon Tea cup this year is expected to be bland with industry representatives stating that in terms of supply, little or no carryover will be witnessed in to 2020 from 2019 with low inventory in the value chain.
An outlook report released by Asia Siyaka for 2020 highlighted that if weather conditions improve and settle in the first quarter, higher crops could be expected in 1H 2020.
“We are hoping that conditions don’t turn extremely hot and dry during 1Q as this will once again reduce production,” stated Asia Siyaka.
The tea broker noted that a key factor would be the possibility of fertilizer being made available to tea producers at subsidised prices.
“This will go a long way to ensure timing and conduct of agricultural practices even if weather and market are unsettled.”
In 2019, although farmers and Regional Plantation Companies (RPCs) had access to fertilizer and other agriculture inputs, they had to deal with weather extremes.
With weather patterns becoming increasingly unpredictable, 2019 had periods of heavy rainfall with overcast conditions in the morning, leading to a drop in quantity and quality.
In terms of market outlook, given that black tea production and quantities exported remained flat or declined in 2019, it is expected that the market in 2020 will be more sensitive to short-term quantity and quality changes.
“We could anticipate a more buoyant market for producers in 2020 with a possibility of sharp fluctuations based on volume and quality until 3Q,” the report stated.
While price levels are expected to increase in both rupee and US dollar terms during the first quarter, the rise is projected to continue into the early second quarter as well. The outlook report also pointed out that local tea producers would be looking for a balance between higher production and better prices, as higher unit value does not necessarily yield profit without better cropping conditions that bring down costs.
“For low-country tea factories, another year of low crop leading to artificial competition for green leaf will see many more units closing down. Higher prices alone will not keep these factories solvent,” the report stated.
Furthermore, with the general election scheduled for early April, along with the one-week break for New Year, additional pressure is expected on the market with exporters looking to move out shipments before the election.
However, the industry projects that much will depend on the impact of El Nino— if it does set in during the third and fourth quarters.
The resulting short supply is expected to push prices up, but distressed factories nursing heavy debt will continue to struggle. (SAA)