Tea Prices May Climb 20% as Lower India Output Widens Shortage

Tea prices in India, the top grower after China, may climb 20 percent in the next five months as lower output and rising demand worsens a shortage, according to McLeod Russel India Ltd., the largest tea-plantation owner.

Average prices in Assam, which accounts for more than half of production, may reach 180 rupees ($4) per kilogram by April from 150 rupees, Azam Monem, marketing director at McLeod, said in a telephone interview. Pest attacks may reduce the crop by as much as 25 million kilograms to 955 million kilograms, he said.

Rising prices may boost profits at growers including McLeod and Jayshree Tea & Industries Ltd., and raise costs for Unilever Plc, Tata Global Beverages Ltd., the owner of Tetley Brands, and other companies that buy leaves from India. Output in Kenya, the biggest exporter, and Sri Lanka, the fourth-biggest grower, may stagnate in 2011 after rebounding this year, said Monem.

“We’re at the thin edge where any inconsistency in weather or cropping pattern has an immediate spiking effect on prices,” Monem said in a phone interview. “The ripples will be felt from January as you’ll be living off inventory.”

McLeod may get an average 147 rupees to 150 rupees on every kilogram sold, compared with 137 rupees to 138 rupees last year, he said. Production may decline to about 4.5 million kilograms, he said. Output totaled 77.2 million kilograms in the year ended March 31, according to the company’s annual report.

Countrywide production slipped 9.6 percent to 120.7 million kilograms in October from a year earlier, the Tea Board of India said Dec. 6. The supply deficit may more than double to 100 million kilograms in the year starting April 1, Monem said.

Exports in the January-to-October period gained to 163.1 million kilograms from 157.6 million a year earlier, the board said. An increase in exports amid a drop in supplies may drain inventory and support prices, said Monem.

“As we approach the close of the season and once factories stop production and supply lines dry up in the north, a lot of people live on stocks,” he said. “Stocks will be drastically reduced as we get into the new crop year” starting on April 1.

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