• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• Smartbuy

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Harish Damodaran

New Delhi, Aug. 14 The firming up of domestic sugar prices couldn’t have come at a worse time for a Government that is clearly in election mode. The main reason for this is the tightening global supplies position, which renders even duty-free imports unviable.

Currently, raw sugar (New York No. 11 October contract) is quoting at 13.96 cents a pound or $308 a tonne. Inclusive of freight costs of $ 70 a tonne, the landed cost at Indian ports would come to nearly $ 380 or Rs 16,270 a tonne.

If on this, one were to also factor in discharge and transportation from the port to mill (Rs 850 per tonne) plus conversion cost of the raws into white sugar (Rs 2,000 per tonne), the processed imported sugar would not be available for less than Rs 19,100 a tonne at the factory-gate.

This is marginally higher than what mills are now realising on their sale of domestic sugar. Ex-factory prices are ruling around Rs 18,000 a tonne in Maharashtra, with these being Rs 18,000-18,500 in Uttar Pradesh and Rs 18,500-19,000 in Tamil Nadu.

In other words, imports even at zero duty are not viable at prevailing global prices. In fact, domestic prices are just about catching up with world levels, with ex-mill realisations in Maharashtra alone now roughly Rs 330 a tonne more than a month ago.

Moreover, if signals emanating from the world market are any indication, the situation might worsen in the coming months. The latest production data from Brazil reveals a 13.2 per cent dip in sugar output to 6.47 million tonnes (mt) during April-July, this year, as against last year’s corresponding level of 7.45 mt. The same period has seen a 7.2 per cent increase in alcohol production from 5.79 to 6.21 million cubic meters.

The above trend is largely a reflection of high crude prices — leading to a record 61 per cent of Brazil’s crushed cane being diverted to ethanol production so far this season, leaving only the balance 39 per cent for sugar. With an estimated 88 per cent of all new car sales in Brazil comprising flex-fuel vehicles, domestic consumption of ethanol alone is slated to go up from 16.5 to 20 million cubic meters in 2008-09.

The ethanol diversion factor in Brazil apart, what is more worrying is the scenario unfolding in the US and European Union (EU). The US Department of Agriculture’s (USDA) latest projections are that the end-September 2009 stocks in the US, at 6,07,000 tonnes, would be the lowest in the last 10 years and below the 10-year-average of 1.6 mt. The expected stocks-to-use ratio of 5.5 per cent would represent less than three weeks of consumption.

What about the EU? The current sugar year (October-September) saw the region, perhaps for the first time in history, turning a net importer to the tune of 1 mt and which could rise further to 3 mt in 2008-09. From being the world’s second largest exporter behind Brazil, EU is headed to becoming the biggest importer — translating into a shift of 8-9 mt!

So what can the Government do? Banning of exports is an option, but with domestic realisations improving considerably, mills have anyway stopped contracting with overseas buyers. They may do so again if raw sugar hits 15 cents a pound (not ruled out), which will also provide a new floor for domestic prices.

The best thing, then, is for the Government to reconcile itself to the present floor of Rs 19-20 a kg and not send out panic signals by exhausting all options — banning export, releasing additional free sale quotas, etc — at a single go.

More Stories on : Exports & Imports | Sugar

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line