JOHANNESBURG/NAIROBI: African tea prices may this week extend their gains from last week's record as a drought in Kenya, the world's biggest exporter of black tea, limits production of the leaves.
Prices rose 4.1 percent to a record $2.80 a kilogram (2.2 pounds) last week in Mombasa, the Kenyan port town that vies with Colombo in Sri Lanka as the world's largest tea auction center.
Kenya produced 12 percent less of the leaf in the first six months of 2009, the state-run Tea Board of Kenya said on July 30.
This week's sale started yesterday, with the results due later in the week.
Prices may "continue going up in the next few weeks", Tony Eshutchi, assistant manger for trading at James Finlay (Mombasa) Ltd, a tea merchant, said in an interview from Mombasa.
"The rains which were expected didn't come and that has really affected the growth of tea."
The drought in Kenya is helping to push up global tea prices.
A "World Market Indicator", compiled from prices at auctions in Mombasa, Colombo, Jakarta and Calcutta by Van Rees Group, a Dongen, Netherlands-based tea trader, shows that prices are about 70 percent higher than they were at the beginning of 2005.
In July, tea growing areas including Kericho and Kisii, which lie west of the Rift Valley, recorded less than 50 percent of their long term average rainfall, according to the Kenyan Meteorological Department.
That dry weather has persisted.
"West of the Rift recorded dry weather with some drizzle reported in Kisii and Kericho," Van Rees said in a weekly market report on its website. "Low green leaf intake continued during the week."
While the Mombasa auction sells tea from most African producers, excluding South Africa and those in West Africa, Kenya accounts for about 70 percent of the volumes sold.
Current prices are lower than had been expected and are likely to increase, a Mombasa-based Africa Tea Brokers Ltd spokesman who declined to be identified in line with company policy, said.
Africa Tea is a founding broker of the weekly Mombasa auction, while James Finlay was the third-biggest buyer in the first half of the year. Unilever Plc's Lipton Tea unit was the biggest.
Drought will cut the production of Kenya's biggest tea grower, Kenya Tea Development Agency, "heavily", Managing Director Lerionka Tiampati, said from Nairobi, the Kenyan capital. "This is a serious drought," Tiampati said, adding in some areas, production has declined 30 percent in the last six months.
Kenya's production dropped to 139.2 million kilograms (306.9 million pounds) in the six months through June, from 157.3 million kilograms in the same period a year earlier, according to the Tea Board. Annual production may fall 6 percent this year, it added.
In 2007 Kenya produced 370 million kilograms of the leaf, lagging only China and India, according to the latest information posted on the website of Africa Tea Brokers. Auctions are also held in Malawi, Jakarta and in several locations in India.
Tea prices in Mombasa have averaged $2.31 a kilogram at the Mombasa auctions this year and the price at this time last year was $2.58. So far this year Kenyan tea prices have averaged $2.51 a kilogram, making it the best quality on offer.
Malawian leaves, at an average of $0.99, were the cheapest. Uganda is the second-biggest supplier to the auction while Rwandan tea competes with Kenyan leaves as the best quality.
This week 5.28 million kilograms of tea is on offer in Mombasa compared with 5.36 million kilograms last week, according to Africa Tea Brokers.
Kenya, East Africa's biggest economy, gets about 40 percent of its foreign-exchange earnings from exports of tea, coffee and horticultural products, according to Trade Minister Amos Kimunya. Egypt, the United Kingdom and Pakistan are the country's top three markets for tea shipments.
The drought has slashed output of other crops including corn and has resulted in regular electricity cuts after dam levels declined, shutting power plants.