Indian sugar exports drop by drop
India’s sugar exports are reduced to a net as its world market prices have fallen below 17 US cents per pound (28,150 yen per tonne).
“India is practically out of the sugar market as world market prices have dropped to around 17 cents. Once the prices fall below 18 cents (29,800 yen per tonne), we cannot have an impact on the export market, ”said Rahil Shaikh, Managing Director of MEIR Commodities India.
Fears of oversupply
“Only a few small amounts of sugar are exported now. These go to the Gulf and some Asian countries, ”said Praful Vithalani, president of the All-India Sugar Traders Association (AISTA).
On Wednesday, contract for No.11 sugar (raw sugar) for October delivery ended at 16.93 cents per pound (28,025 yen per tonne) on the Intercontinental Exchange, while white sugar for August delivery in London $ 425.30 (31,700 yen) per ton.
Sugar prices have trended lower in recent weeks amid concerns over oversupply and weak demand. In addition, sugar production in Brazil’s main south-central region rebounded last month, putting pressure on prices.
Raw sugar prices hit a four-year high of 18.9 cents per pound (31,300 yen per tonne) in February amid uncertainty over supplies from Brazil, the world’s largest producer, and production estimates rising.
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The absence of Brazil is the most of India
“The world market today depends on Brazil for sugar. It is only if something is wrong in the South American nation that India comes into the picture, ”said a sugar trader.
In December-May this year, India took full advantage of Brazil’s absence from the world market to export 4.75 million tonnes (mt) of sugar this season (October 2020-September 2021). The exported volume is on the 5.9 mt contracted for exports.
“White sugar exports are also facing problems. We are unable to ship to Afghanistan due to internal issues there, while Sri Lanka has banned sugar imports, ”said Shaikh of MEIR Commodities.
Afghanistan is currently in turmoil following the withdrawal of Western troops led by the United States, which has led the Taliban to attack the Afghan army and seize key regions. Sri Lanka has banned sugar imports to deal with its currency crisis.
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The offer of Indian mills
“We have small amounts going to Sudan and Syria,” Shaikh said.
Indian factories will be able to offer raw sugar at $ 420-430 (31,300-32,050 yen) per tonne and white sugar at $ 430, more than what Brazil quotes. “Our offers are 70 cents above the price of raw sugar in New York,” said the head of MEIR Commodities.
Vithalani said India, the world’s second-largest producer, would exceed the sugar export target by six tonnes and could ship an additional 0.5 tonnes under an open general license. Shaikh said the overall exports could be around 6.8 million tonnes.
This season, sugar exports have been facilitated by a 3,500 crore assistance program extended by the Center. This would bring in 6,000 yen for every ton of sugar exported. However, this incentive will only be available for 5.7 tonnes of sugar contracted for exports until May 20. The remaining 0.3 tonne will receive an incentive of ₹ 4,000 per tonne, according to a government notification.
“Incentive is bad news”
Government support for sugar exports is needed to ensure liquidity for factories, which must pay farmers a fair and remunerative price for the cane they supply. Dues to sugar mill farmers are reportedly over 20,000 crore this season.
Indian sweets can only export competitively if the incentive is extended.
“If there is any bad news for the world sugar market, it is the incentive of the Indian government. The moment it is announced, world prices drop, ”said a trade source, who declined to be identified.
According to industry sources, India may not be able to offer incentives after December 2023 due to its obligations in the World Trade Organization. The United States, Canada and Australia have filed a petition with the WTO dispute settlement body against the inducement.
Last season, the Center offered an incentive of 6,300 crore for sugar exports. This has helped factories get an average of 9,750 yen for every ton of sugar shipped.
The Indian Sugar Mills Association, an organization of private factories, said on Wednesday that exports would exceed seven tonnes this season. This would reduce the ending stocks of sugar to 8.7 t from 10.7 t in September last year.
Ending sugar stocks increased last season despite low production of 27.4 million tonnes 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 remain unchanged, as 3.4 million tonnes of sugar are expected to be diverted for ethanol production.
Sugar exports this season have also been boosted by two key decisions of the Union government. First, the Center authorized the exchange of quantities of sugar for the domestic market with the export market. As a result, the Maharashtra sugar factories exchanged their quota in the domestic market with the export market quota of the Uttar Pradesh factories. This made it possible to export 0.7 t of sugar.
Second, the Center allowed the entry of raw and white sugar into refineries in special economic zones (SEZs) and extended the incentives for such entry.