Sugar prices in the global market have surged to near six-year highs on fears of lower production in a few countries, including India, and the likelihood of the Indian government not allowing exports of more than six million tonnes (mt) for the current season (October 2022-September 2023).

On Monday, raw sugar on the InterContinental Exchange (ICE), New York, ended at 21.20 US cents a pound (₹38,950 a tonne) for March delivery. London white sugar for March delivery is ruling at $565.10 a tonne. 

Premium to domestic price

Trade sources said one reason for sugar prices to resume their uptrend after softening a tad last week was that the Indian export quota of 6 mt, to be shipped by May 31, has been “almost” exhausted and only a meagre volume is left for sale. 

“Whatever sugar is being offered from India, it is at a premium of ₹8,000 a tonne to the domestic price. Even at this price, Indian sugar is cheaper than Brazil or other origins,” said a trader. 

“Indian sugar is more competitive than Brazil because freight charges are lower for shipments to nearby regions,” said Rahil Shaikh, Managing Director, MEIR Commodities India Pvt Ltd. 

Raw sugar from India is quoted at $535 a tonne in 50-kg bags, while refined sugar is offered at $600 a tonne.  

India’s lower yields

London-based diversified global financial services platform Marex said the current rally in sugar is “based on the realisation that, thanks to much lower yields, India would only export 6 mt instead of 8 or 9 mt we had been expecting”. 

Initially, when the current season began on October 1, India was expected to export 8-9 mt of sugar but the sugarcane crop in Maharashtra and Karnataka has been affected by excess rains. 

As a result, sugar production, which was forecast to be a record high of 36.5 mt in October, has been revised lower at 34 mt — 5 per cent lower than last year’s 35.8 mt by the Indian Sugar Mills Association (ISMA).  

Brazil’s logistics issues

Trade sources, pointing to some Maharashtra mills planning to shut operations three months ahead in view of lower-than-expected cane production, said they would not be surprised if the final production turns out to be 33.5 mt. 

The All India Sugar Traders Association (AISTA), providing data sourced from Mumbai-based Dr Amin Controllers Pvt Ltd, said 2.78 mt of sugar have been physically exported out of the 3.59 mt dispatched by Indian sugar mills.

Marex said Brazil might face logistics issues since a bigger cane crop will compete for transport with equally large grain crops. “This could have two consequences: firstly, slowing down exports so that the current tightness gets extended in time, and secondly making it difficult for Brazilian sugar to be delivered...,” it said. 

This will affect delivery in April if traders were looking to deliver for May contracts on ICE. Similar developments could affect July and October contracts too, it said. 

EU ruling on beet 

As the potential problem “looms nearer”, raw sugar buyers will start trying to book earlier shipments, thus compounding the problem, it said. 

Marex said the sugar market action is currently complicated with funds, which had begun selling, returning to buy. Funds currently hold a position of 2,00,000 lots. 

Besides the problems with Indian and Brazilian crops, a ruling in the European Union against neonics-coated beet seeds could result in lower yield. The crop is feared to be lower in Australia, Egypt and Mexico too. 

In addition, sugarcane yield has been affected in the Chinese province of Guangxi due to a prolonged drought last year. 

Trade sources said African countries are looking for smaller lots, thus putting pressure on the supplies.

The sources said with a production of 33.5 lakh tonnes and a carryover stock of 6 mt, India should be able to manage the current season after exporting the allocated 6 mt quota.

Related Topics