Colombo’s tea industry is watching developments in West Asia (Middle East) closely amidst rising oil prices, erratic weather at home and crucial wage negotiations between workers and plantation management later this month.
“Though the market has not got affected so far, the situation is a bit volatile. The level of comfort has been shaken,” noted Anil Cooke, Chairman of Asia Siyaka, a Colombo broking firm. “We have to wait and see, with the next three months being crucial.”.
Tea is Sri Lanka’s biggest export commodity and a key foreign exchange earner.
Turmoil in West Asia has seen the ousting of Eqyptian strongman Hosni Mubarak and Libya’s long-time leader Muammar Gaddafi facing a people’s revolt. The crisis had also spread to Bahrain and Tunisia. West Asia is among Sri Lanka’s biggest tea markets, the main source of the country’s oil and labour markets and any major fallout there could adversely affect Sri Lanka’s economy.
Foreign employment agents in Colombo said so far the market hasn’t been affected except for the small group of Sri Lankans being repatriated from Libya and Eqypt. Rubber is however coming to the rescue of the Sri Lankan economy which is hit by high oil prices and rising imported food costs as demand for food rises in India and China, amidst a global grain shortfall.
Upali Bandaranayake, a veteran rubber trader and director at Forbes & Walker said a global short supply situation due to unseasonal weather and soaring demand for vehicles will see prices continue at $5 per kg for RSS 3 across the year. In February, the average price for RSS3, mainly used for tyre manufacture, was $5 per kg while all other grades also fetched record prices, the highest in some 75 years.
“There is a huge demand for vehicles and owning to that rubber (for the tyres). There are reports that the current number of vehicles in the world would almost double to 1.5 billion from 800 million now,” he said adding that some reports showed that in Sri Lanka alone some 7,000 vehicles have been ordered.
Rubber prices have been doing well over the past five years rising from $1.2 per kg for RSS 3 in 2005 to $5 in January/February 2011.
“The supply is short in producing countries particularly Thailand, the largest producer of natural rubber due to erratic weather. Rubber needs good weather for at least 6-7 months continuously,” he said.
While tyres and gloves will do well due to the demand, the high prices could affect other products like rubber mats and bands.
Mr Cooke said that first quarter tea output would be affected due to the weather with January figures showing a drop of 4 million kg from 26 million in January 2010. “The growing instability (in West Asia) is always a worrying factor for Sri Lanka since the bulk of our tea goes there and through that region to the CIS and other markets,” he said.
Tea prices, he added, haven’t gone up just like sugar, cocoa or coffee though they are all in the same commodities basket
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