Indian sugar exports down to a trickle

Indian sugar exports are down to a trickle as its prices in the global market have dropped below 17 US cents a pound (₹28,150 a tonne).

“India is practically out of the sugar market as prices in the global market have dropped to around 17 cents. Once prices drop below 18 cents (₹29,800 a tonne), we cannot make any impact in the export market,” said Rahil Shaikh, Managing Director, MEIR Commodities India.

Excess supply fears

“Only some small quantities of sugar are exported currently. These are going to the Gulf and some Asian countries.,” said Praful Vithalani, President of All-India Sugar Traders Association (AISTA).

On Wednesday, sugar No 11 contract (raw sugar) for delivery in October ended at 16.93 cents a pound (₹28,025 a tonne) on the Intercontinental Exchange, while white sugar for August delivery in London $425.30 (₹31,700) a tonne.

Sugar prices have headed south over the last few weeks on concerns over excess supply and weak demand. In addition, sugar production in Brazil’s key centre-south region recovered last month, putting pressure on prices.

Raw sugar prices hit a four-year high of 18.9 cents a pound (₹31,300 a tonne) in February on uncertainty over supplies from Brazil, the world’s top producer, and estimates of production rising.

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Brazil’s absence is India’s plus

“The world market today depends on Brazil for sugar. Only if something goes wrong in the South American nation, India comes into the picture,” said a sugar trader.

During December-May this year, India took full advantage of Brazil’s absence from the global market to export 4.75 million tonnes (mt) of sugar this season (October 2020-September 2021). The exported volume is out of 5.9 mt contracted for exports.

“White sugar exports too are facing problems. We are not able to ship to Afghanistan due to the internal problems there, while Sri Lanka has banned sugar imports,” said MEIR Commodities’ Shaikh.

Afghanistan is currently in turmoil after the withdrawal of western troops led by the US, resulting in the Taliban attacking the Afghan army and capturing key regions. Sri Lanka has banned sugar imports to manage its foreign exchange crisis.

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Indian mills’ offer

“We have some small quantities going to Sudan and Syria,” Shaikh said.

Indian mills will be able to offer raw sugar at $420-430 (₹31,300-32,050) a tonne and white sugar at $430 — higher than what Brazil quotes. “Our offers are 70 cents over New York raw sugar prices,” the MEIR Commodities official said.

Vithalani said that India, world’s second-largest producer, would top the six mt sugar exports target and could ship out another 0.5 mt under open general licence. Shaikh said overall exports could be around 6.8 mt.

This season, sugar exports have been facilitated by a ₹3,500-crore assistance package extended by the Centre. This would fetch ₹6,000 incentive for every tonne of sugar exported. However, this incentive will be available only for 5.7 mt of sugar contracted for exports till May 20. The rest 0.3 mt will be given an incentive of ₹4,000 a tonne, as per a Government notification.

‘Incentive is bad news’

Government assistance for sugar exports is necessary to ensure liquidity for mills, which need to pay fair and remunerative price to farmers for the cane they supply. Dues to farmers from sugar mills is reported to be over ₹20,000 crore this season.

Indian sugar mills are able to export at a competitive price only if the incentive is extended.

“If there is any bad news for the global sugar market, it is the Indian government’s incentive. The moment it is announced, global prices drop,” said a trading source, who did not wish to be identified.

According to industry sources, India may not be able to offer incentive after December 2023 in view of its World Trade Organisation obligations. The US, Canada and Australia have petitioned the WTO’s dispute settlement body against the incentive.

Ending stocks

Last season, the Centre offered ₹6,300 crore incentive for sugar exports. It helped mills to get an average ₹9,750 for every tonne of sugar shipped.

The Indian Sugar Mills Association, a body of private mills, said on Wednesday that exports would top seven mt this season. This would prune the ending stocks of sugar to 8.7 mt compared with 10.7 mt in September last year.

Ending sugar stocks increased last season despite a low 27.4 mt production as the Covid pandemic affected consumption. This season, production is estimated at 31 mt by ISMA and 29.9 mt by AISTA.

For the next season, ISMA expects it to be unchanged as 3.4 mt of sugar is expected to be diverted for ethanol production.

Sugar exports this season have also been helped by two key decisions of the Union Government. First, the Centre allowed swapping of sugar releases for the domestic market with the export market. It resulted in Maharashtra sugar mills exchanging their domestic market quota with Uttar Pradesh mills export market quota. This helped export 0.7 mt of sugar.

Second, the Centre permitted raw and white sugar entry into refineries in special economic zones (SEZs) and extended the incentive for such entries.