Mumbai: Indian tea prices are likely to rise in the second half of 2010 as a pest attack has hit output amid healthy demand, but a rally is unlikely due to better output in other major producing countries like Sri Lanka and Kenya.

A pest attack of helopeltis adversely affected tea gardens in the north-eastern state of Assam, India’s top producer, trimming the country’s tea output in June by 11.9% and lifting tea prices by nearly 15% in the past one month.

“Tea price is already higher by Rs25 a kg compared to last year and I do not see it coming down going ahead in the current year," said D P Maheshwari, managing director of Jay Shree Tea & Industries Ltd.

The average price of CTC (crush-tear-curl) tea in last week’s auction in the eastern Indian city of Kolkata jumped 6.32% to Rs138.65 ($3) per kg, up 17% from a year ago.

“Pest attack is now under control, but it had caused damage in July as well. We are expecting lower output in July," said a senior Tea Board official, who declined to be named.

Tea Board chairman Basudeb Banerjee told Reuters last month the country’s tea output in 2010 is likely to fall below the 2009 level.

“Even if southern India’s production is good, this shortfall will not be made up," said Aditya Khaitan, chairman of Indian Tea Association.

The pest attack has not hit plantations in southern India, which contributes significantly to the country’s total output.

Going ahead, the industry would be happy if it could maintain last year’s production figures, said Khaitan, who is also managing director of McLeod Russel, India’s largest tea producer and exporter.

Faced with severe drought in the major tea producing areas, India’s total tea production in 2009 fell marginally to 978.9 million kg from 980.81 million kg in 2008.

“Last year, we started the season with drought, but from August till November we had record production which will not be the case this year. Hence prices are expected to go up further," an official from Calcutta Tea Traders’ Association (CTTA) said.

Despite a drop in June production, India’s tea output in Jan-June 2010 stood at 339 million kg, up 1.5% on year due to higher crop in Jan-April.

“Pest attack will harden the prices in domestic market, but it is unlikely to trigger a rally. This year production in Sri Lanka and Kenya has improved significantly. They are competing with Indian exporters," said a Kolkata-based dealer, who is also a member of CTTA.

India exports CTC variety of tea, mainly to Egypt, Pakistan and the UK, and the premium orthodox variety of tea to Iraq, Iran and Russia.

Sri Lanka’s tea production in the first half jumped 26.2% from a year ago and the country is on the path to produce a record crop this year provided weather remains conducive.

Kenya’s tea production this year is likely to rise between 5% and 10% above 2009 levels of 315 million kg.

The drop in tea output in June slashed India’s exports by 14.6% to 12.76 million kg in the month.

Higher domestic tea prices may hurt Hindustan Unilever and Tata Global Beverages Ltd, one of the country’s biggest buyers, with global brands such as Tetley and Good Earth.