The Hindu Business Line : Raw sugar import options turn unviable

THE sugar industry's plans to import raw sugar on a large scale to make up for the shortfall in domestic cane availability have gone awry, with global prices firming up significantly over the past month.

The benchmark No. 11 raw sugar futures at the New York Board of Trade (NBOT) for March 2005 closed on Thursday at 9.25 cents a pound or $203.92 per tonne free-on-board (f.o.b). If one adds freight cost of around $55 per tonne from Brazil, the landed cost in Mumbai would work out to almost $259 per tonne.

This is way above the prices that Indian Sugar Exim Corporation Ltd (ISEC) had contracted for the two tenders it had floated last month. In its first tender on September 13 for import of 25,000 tonnes on behalf of Maharashtra mills, ISEC had contracted a price of $223.25 per tonne c.i.f. (cost, insurance, freight), Mumbai port.

At that time, NBOT No. 11 raw sugar futures was quoting at 7.66 cents a pound or $168.87 per tonne f.o.b.

This was followed by a second tender on September 27 for 40,000 tonnes — this time for mills in Uttar Pradesh — for which the contracted price was around $234 per tonne c.i.f., Kandla.

By then, prices at NBOT futures had risen to 8.21 cents a pound or $181 per tonne f.o.b., which has now further shot up to 9.25 cents a pound ($203.92 per tonne).

The current landed cost of $259 per tonne translates to about Rs 11.90 per kg at current exchange rates. The cost of processing this raw sugar (after adding port handling charges, transport to mill, refining losses, etc.) would be roughly Rs 14.20 per kg for a mill in Maharashtra and Rs 14.70 per kg in Uttar Pradesh.

This, in turn, assumes that the factories would be mixing the imported raw sugar along with the cane juice obtained during regular crushing operations, allowing them to use the steam generated from baggase.

The other option of running a stand-alone coal-fired boiler in the off-season would entail an extra outgo of Re 1 per kg. This would take the total cost well above Rs 15.50 per kg, against the ruling ex-factory realisation of around Rs 15.30 per kg for mills in UP.

Traders say mills can also import raw sugar from Thailand, instead of Brazil, to save on freight costs. But then, Thai raw sugar has an ICUMSA value of over 2,000, compared to less than 1,000 for Brazilian-origin cargo. The higher ICUMSA value means the raw sugar cannot be used along with cane juice and has to be necessarily processed in a stand-alone refinery.

While many mills in the South — including Sakthi, Dharani, Thiru Arooran and EID Parry — have this facility, the same is not the case for factories in Maharashtra or UP (barring Dhampur Sugar).

The Government had, last month, allowed mills to import raw sugar at zero duty under the advance licence scheme and sell the processed white sugar in the domestic market. While mills are still obliged to export white sugar within 24 months of undertaking the imports, they can, however, do so by processing local sugarcane rather than the originally imported raw sugar.

Following the decision, several mills had lined up plans to contract large-scale imports, which seems unlikely now.

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