India tea exports to Iran are likely to surge by around 50 per cent in 2013 from the previous year as the sanctions-hit country increases purchases to replenish inventory and make use of one of its few remaining payment channels.

Iran is one of the biggest buyers of the south Asian country's tea and prefers to buy orthodox grade. Its purchases in 2013 are likely to rise to 20-21 million kg from about 13.78 million kg a year ago, worth 3.2 billion rupees ($53.10 million), industry officials told Reuters.

Higher orthodox purchases by Iran will help India to maintain exports at last year's level, as overseas demand for CTC (crush-tear-curl) is weak due to cheaper supplies from Kenya.

"There is strong demand from Iran. Since the payment issue has been settled I don't see any problem in exporting. There are lots of export orders," said Aditya Khaitan, managing director of McLeod Russel, the world's biggest producer of tea.

India's tea exports to Iran fell 28 per cent in 2011 from the previous year, after India's central bank, under pressure from the US, ended a clearing mechanism which had been used to settle trades. The move also hit oil imports from Iran.

Because of the US and European sanctions, which are aimed at cutting funding for Iran's nuclear programme, India now pays for 45 per cent of its oil purchases using its rupee currency and Iran can also use rupees to pay for its purchases from India.

Iran is replenishing its tea inventory as it bought much lower than its requirement in the last few years, Khaitan said.

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

"Tea companies are getting higher prices for orthodox due to exports demand. Some companies are making more orthodox tea instead of producing CTC," Deepak Atal, managing director of Amalgamated Plantations, said.

India exported tea at an average price of 232.34 rupees per kg to Iran last year, according to the provisional data compiled by the state-run Tea Board. This year exporters are selling tea around 240 rupees per kg, although price varies depending on quality, exporter said.

India's overall tea exports in 2013, however, are likely to remain steady around last year's 201 million kg as demand was weak for the CTC due to higher supplies from top exporter Kenya, Atal said.

Kenya's tea production in the first four months of 2013 jumped by nearly 72 per cent from the last year to 155.3 million kg, depressing local prices by nearly a quarter since the beginning of the year.

Kenya has been supplying tea at lower prices due to bumper production, but Indian companies can't sell at lower prices because of higher production costs and demand for CTC is robust from local buyers, said a Kolkata-based exporter.

India mainly consumes CTC and exports almost its entire production of orthodox.

Exporters were quite active on auction platform and were ready to pay higher price for orthodox due to strong overseas demand, said Krishan Katyal, managing director of J Thomas, the biggest tea broker in the country.

"Good quality leaf from second flush has started arriving in the market. In next two-three months we can see surge in exports," said an official at Calcutta Tea Traders' Association.-Reuters