The Hindu Business Line : Rise in world raw sugar prices raises hopes for Indian mills

After a prolonged despondent phase, there is finally some bit of sweet news filtering in for the country’s beleaguered sugar sector. With Brazil’s mills crushing less cane than expected and also diverting a larger share of their crop towards manufacture of ethanol, world sugar prices have been firming up of late.

Futures prices

Since the start of this month, October futures for raw sugar (No. 11) at the New York Board of Trade (NBOT) have climbed from 9.24 cents to 10.30 cents per pound (i.e. from $203.70 to $227.07 a tonne).

But that’s not all. While the October 2007 contract settled at 10.30 cents on Friday, these were even higher for subsequent months: 10.75 cents for March 2008, 10.77 cents for May 2008, 10.80 cents for July 2008, 11.07 cents for October 2008 and 11.34 cents for March 2009. The last quote is equivalent to $250 a tonne stowed at Caribbean ports, including Brazil.

“The outlook has changed perceptibly for raw sugar, even if not for whites. The fact that the prices for later months are ruling higher than for the near month contract is indicative of a bullish trend developing,” sources pointed out.

Exports

For the domestic industry, which has just embarked upon plans of exporting raw sugar on a big scale from the ensuing 2007-08 season (October-September), the news couldn’t be better.

In June, the Indian Sugar Exim Corporation (ISEC) had contracted with the Dubai-based Al-Khaleej refinery to supply 2.35 lakh tonnes (lt) of raws at $246.5 per tonne free-on-board Mundra, for shipment between December and March next.

Freight advantage

Indian mills have a freight advantage of about $35 tonne over Brazil for supplying to the West Asian markets. With world prices having risen from the sub-nine cent levels of early June, ISEC (which exports on behalf of private and cooperative mills here) may well contract future shipments at higher prices.

The main cause of the current spurt in global raw prices is the news coming in from Brazil. Mills there have slashed production of sugar by nine per cent during the first half of 2007, while stepping up ethanol output by 11 per cent.

While in 2006, 49 per cent of the cane was used for making ethanol, that proportion is expected to go up to 55 per cent this year. Crushing for the full year is also slated to end up lower by roughly 10 million tonnes.

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