Rupee appreciation affects Colombo Tea Auction negatively

• First sale of the month kicks off on ‘hesitant’ note
• Unsold quantity at live auction increases sharply to 26%
• Tea brokers expect market to achieve equilibrium once rupee settles
• Tea exporters say excessive exchange volatility difficult to cope with
• Urge authorities to better handle exchange rate volatility

By Shabiya Ali Ahlam
The Colombo Tea Auction yesterday saw a mini storm brewing as substantial quantities went unsold amid the sharp appreciation of the rupee against the US dollar.
Tea brokers said the first sale in March began on a very hesitant note due to the Sri Lankan rupee strengthening in an “unexpected manner”.

“At the commencement of the sale, large volumes of tea were unsold with bids realised being significantly below the percentage appreciation of the Sri Lankan rupee,”said Forbes and Walker Tea Brokers in its weekly tea auction report.

“As the sale progressed some degree of stability was reached although rupee prices, on average, recorded a decline of Rs. 200-300 per kg and on the higher selling grades, perhaps up to Rs. 300-400 per kg vis-à-vis the previous week’s level,” it added.

The unsold quantity at the live auction increased sharply to 26 percent this week.
Since last week, the Sri Lankan rupee has been appreciating on a daily basis. On Tuesday (7), the rupee soared 5.7 percent to Rs. 321 per dollar, 

which is the biggest gain since 1989.
Yesterday, the rupee appreciated further against the US dollar, where the buying rate was at Rs. 307.36, and the selling rate Rs.325.52.
At the last week’s Colombo Tea Auction, the buying rate was Rs.351.72 and selling at 362.95 per US dollar.

Tea brokers noted that in response to the sharp strengthening of the rupee, buyers at the auction dropped their bids ranging from Rs.100 to Rs. 400 per kg and at times more.
Asia Siyaka in its weekly tea report stated that the Tea Auction does not reflect lost value of tea that is unsold as the average price per kilo is computed on the basis of tea sold.
“While buyers are seeking to recover some of the losses, they are likely to experience for teas already purchased and those shipped, brokers and producers meanwhile are hard pressed to anticipate direction the market would take as speculation and sentiment are adding to the existing confusion, “ said Asia Siyaka.

However, the tea brokerage noted that the market is expected to achieve equilibrium once the rupee settles as the effective rate in US$ to international imports remains largely unchanged.
Commenting on the sudden rupee appreciation and its impact on the tea sector, Tea Exporters Association Chairman Ganesh Deivanayagam said that while the development is good for the national economy, such sudden and shocking changes make business unstable.

“Reduction of input costs such as electricity, fertiliser, fuel and also interest rates should be followed up swiftly to relieve the tea industry from this sudden and unprecedented loss situation,” Deivanayagam told Mirror Business.

“The government must take immediate action to regulate inflation and bring down the costs fast, so that the people will be able to cope with this reduction in income for the tea industry as a whole,” he said.

Deivanayagam added that it is essential for the government to manage the volatility better to help out industries, especially exports, so that local companies can remain competitive in the global market.