Lack of export orders from key buyers such as Pakistan, Bangladesh and Sri Lanka coupled with a decline in global prices are compounding the woes of Indian sugar factories. This is even as cane crushing gains momentum and millers, faced with liquidity issues, struggle to sell sugar in the domestic market.
“Buyers have adopted a wait-and-watch policy as prices are on a downward trend on global surplus,” said Mr Abinash Verma, Director General of the Indian Sugar Mills Association (ISMA).
The white sugar futures in London that traded at $710.5 a tonne for March 2012 contract in September are now hovering around $608, decline of 15 per cent in past four months. Similarly, the May 2012 contracts that ruled at $698 in September are now hovering at $601.
The Government recently allowed exports of 1 million tonne of sugar and notified the same in early December. Since then, the Directorate of Sugar has issued export permits for only 22,578 tonnes, which explains the sluggish off-take for Indian sugar in the export market.
“This is not the best time to judge exports,” said Mr Ram V.Tyagarajan, CMD, Thiru Arooran Sugars, stating that the sluggish trend was not unusual during December. He expects the exports to pick up after January 10.
Corroborating Mr Tyagarajan's views, Mr Sanjay Tapriya, Chief Financial Officer at Simbhaoli Sugars Ltd said the exports will pick up going forward.
GLOBAL PRICE CRASH
Though the millers are confident about off-take, the export premium has taken a hit as on account of global price crash. The recent fall in rupee against the dollar also has not brought any cheers to the exporters. “The decline in global prices has been at a faster pace when compared to the rupee devaluation,” Mr Taparia said. The exporters are realising Rs 4-5 a kg more than the domestic realisations, depending on the quality of sugar and the destination to which it is exported.
According to the International Sugar Organisation, Pakistan was the largest buyer of Indian sugar in 2010-11 at 4.10 lakh tonnes, followed by Sri Lanka at 1.01 lakh tonnes. Bangladesh was the third largest importer at 96,746 tonnes.
Even in the domestic market, the prices have crashed by Rs 150-200 a quintal in the past 15 days. This is probably because of the high free sale quota released by the Government for November and December, which is 15-20 per cent higher over corresponding last year, Mr Verma said.
“The mills are facing double whammy both from domestic and export market,” Mr Verma said. Moreover, the Government is seeking lot of information and new documents from the mills while applying for export application, which is hard to furnish in the mid-crushing season, he said. This will delay the exports and the much need cash flows, Mr Verma added.