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Tea prices set to rise on production shortfall; stocks may gain

Friday, 6 June 2014 - 6:30am IST | Place: Kolkata | Agency: dna

Tea companies are set to feature in investors' radar going ahead as expectations of upswing in tea prices amid likely drop in production this year could trigger rally in the listed entities.

During the early period of tea season in 2014 when production usually picks up at a fast pace, poor rainfall led to drought conditions in the tea growing regions of Assam and Bengal, resulting in crop losses.

Indian Tea Association (ITA), the country's largest association of tea planters based in these two states, have raised the red flag amid concerns over expected drop in production due to adverse weather including drought conditions.

"The Indian tea industry is perturbed to witness the unprecedented weather conditions in North East India. There was little rainfall, high temperature since the beginning of 2014 resulting in severe drought in Assam Valley and many other tea regions of Assam and North Bengal.

Till March all other tea districts (of Bengal and Assam), barring Darjeeling and Terai, registered some gain in crop. However, the situation deteriorated thereafter when the requirement of rains became imperative.

The situation went bad to worse from April to May. During this two months many parts of Assam Valley, Darjeeling, Dooars did not have any rainfall, thereby playing havoc on the health of tea bush and hence on made tea," Indian Tea Association said on Thursday.

India's tea production, which also includes the southern plantations, was 1,200 million kgs in 2013, marginally higher than 1,126 kgs in 2012.

Likely shortage of production comes at a time when consumption is growing at a healthy rate of around 3% annually every year, signaling a positive impact on tea prices, key driver for tea stocks.

Tea scrips like McLeod Russel, world's largest plantation company, failed to join during the pre or post election euphoria, going down from a level of Rs 326 at the beginning of January to about Rs 285.

"Production in India during the calendar 2014 is expected to be lower due to crop loss in the months of April and May. Prices in India are likely to remain firm because of stagnant-to-lower production and strong consumption growth," said McLeod Russel.

"Tea prices in the new season (beginning end-April) have opened 5% to 10% higher as compared to previous year. There would be about another 5% impact on prices due to wage price revision," officials of McLeod said.

In the tea growing areas of Upper Assam, Lower Assam, North Bank, Dooars and also in Siliguri and Darjeeling in Bengal, rainfall is deficient by about 35%-60%, ITA said.

"Most of the gardens have not been able to follow the standard agricultural practices like ground manuring due to shortage rainfall in time - thereby depressing current & future crop outlook. The drought conditions are reflecting in leaf defoliation, raising the specter of attacks from pests and delayed application of fertilisers and other growth promoting agents."

This could translate to an overall decline in the North Indian crop by around 16 million kgs during April and 14 million kgs during May, an unprecedented drop of 30 million kgs in just two months of 2014 vis-a-vis 2013, the ITA report said.

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