India Tobacco Prices May Ease on Ban Cramp, Output

Source from:  By Rajendra Jadhav 11/13/2008

MUMBAI, Nov 11 (Reuters) - Indian tobacco prices may ease on higher output as a ban on smoking in public crimped demand from domestic cigarette makers, but booming exports may cap the downside, industry officials said. India banned smoking in public places last month in an attempt to fight tobacco use blamed, directly or indirectly, for a fifth of all deaths in the world's third-largest consumer. "The domestic tobacco demand is about 120 million kg. It may come down by 5 percent (due to the ban)," Bellam Kotaiah, president, Indian Tobacco Association, said. In the southern state of Karnataka, average price of premier grade Flue Cured Virginia (FCV), used for cigarette-making, was 104 rupees per kg last week, up 76 percent against last year's average price of 59 rupees. The federal budget for year ending March 2009 had increased duty on non-filtered cigarettes, making it more expensive and slashing demand. "Consumption of non filtered cigarettes is falling. The price of lower grade FCV has fallen sharply in last four weeks from 70 rupees a kg to 55 rupees," said J. Suresh Babu, chairman of the Tobacco Board. Non-filter cigarette makers use lower grade FCV tobacco. Karnataka, the second biggest producing state, is expected to harvest 105 million kg of tobacco in 2008, a jump of 20.7 percent from the year ago as farmers increased acreage on higher prices. Area in Andhra Pradesh, the biggest producer, is also likely to be expanded this year. A shortfall in the international market had pushed up prices, but now with the supply situation improving globally, Indian prices may correct, said S Janardhan Reddy, chief executive, Indian Leaf Tobacco Development Division, a branch of ITC Ltd. Out of total output of FCV India usually exports around 55 percent, while the domestic market consumes the rest. Global tobacco companies like British American Tobacco, Japan Tobacco Inc., Philip Morris International and Imperial Tobacco Plc are main buyers of Indian leaf. ITC, a Kolkata based company, Godfrey Phillips India Ltd and Vazir Sultan Tobacco are leading Indian buyers. Exports of unmanufactured tobacco jumped 81 percent to $312 million in the first half of 2008/09, helping keep prices firm in the domestic market. "In the last few months exporters were very aggressive in the market. But in coming months, they may slow down buying as China is offering tobacco at lower price," said Kotaiah. Chinese premier grade FCV sold for $4.4 a kg, against India's $5 per kg, he said. Enditem