Universal Corporation, the world’s leading tobacco merchant and processor based in the US state of Virginia, says Zimbabwe and Tanzania would lift global inventories of flue-cured tobacco this year and bring the leaf’s long-term average, which is seen at an overly low level, back to equilibrium.
Zimbabwe, the world’s largest producer of flue-cured tobacco, has this year reported a glut at local auction floors and total deliveries are estimated to reach 114 million.
In the first half, the value of tobacco shipments came second after mining, grossing $$143 million, according to the mid-term monetary policy statement.
Universal Corporation estimates worldwide dealer inventories of flue-cured and burley leaf have increased to about 105 million kilos this year from around 70 million last year, a level still lower than the minimum long-term average.
This is because Brazil and a greater part of South America experienced production challenges caused by excess rain.
“Levels remain well below the long-term average, but we believe there is potential for oversupply in flue-cured tobacco,” George Freeman III – chairman, president and CEO of Universal Corporation – announced in the financial report for Q1, 2011 ended March 31.
“For this season, lower flue-cured crops in Brazil and the United States are being offset by projected increases in Tanzania and Zimbabwe.
The level of manufacturers’ inventory durations and future supply forecasts also affect market balance.”
Universal Corporation’s main line of business is the buying and processing of burley (air-cured tobacco) and flue-cured tobacco and has operations in more than 30 countries worldwide.
Its trading revenues for the fiscal year amounted to $2,5 billion.
Flue-cured tobacco is produced by drying leaves with furnace-fired heat in a closed building without exposing it to smoke and this process produces tobacco low in sugar and high in nicotine, a chemical substance with high addictive properties.
Burley on the other hand is used primarily for cigarette production.
Market watchers say the global demand for and supply of burley and flue-cured tobacco in the outlook would also be affected by exogenous factors, some of which threaten to cut new investments in tobacco growing.
The most eminent is the proposed ban on certain ingredients used in the manufacture of tobacco products by the World Health Organisation through its Framework Convention on Tobacco Control guidelines, still a draft protocol.
The protocol would eliminate traditional blended cigarettes, which account for approximately half of the global market.
The inter-governmental organisation argues tobacco is one of the leading preventable cause of death worldwide.
Local producers have recommended that Zimbabwe sign up the protocol and use its status as the world’s largest producer of flue-cured tobacco to influence the fate of the proposed market regulation.