The Hindu Business Line : Slowdown in sugar exports likely in 2008-09

New Delhi, Sept 21 India’s sugar exports are set to register a marked slowdown in the coming 2008-09 crushing season (October-September), notwithstanding the weakening rupee and a tight global supply situation.

The current season has seen all-time-high shipments of 47.92 lakh tonnes (lt) till September 15, including 27 lt of raw sugar and 21 lt of whites.

Among those who have exported significant quantities are the Indian Sugar Exim Corporation (10 lt, including 8 lt of raws) and Shree Renuka Sugars (8.50 lt), besides Thiru Arooran Group, EID Parry and Sakthi Sugars (2.5-3.5 lt each).

GLOBAL OUTPUT

The International Sugar Organisation (ISO) has projected world sugar output in 2008-09 to fall by 7.353 million tonnes (mt) to 161.649 mt – the first ever decline since 2004-05. On the other hand, consumption is slated to go up by 2.35 per cent to 165.547 mt, translating into a shortfall of 3.9 mt (the figures are in raw value, with 1.08 tonnes raw equal to one tonne of white).

“The distinctive global surplus phase has ended and the market is likely to move into a deficit phase,” the London-based intergovernmental body has said in its first forecast of the world sugar balance.

Major drops are expected in India (down 4.5 mt), European Union (2.90 mt), Pakistan (1mt), Thailand (0.402 mt), US (0.30 mt), Philippines (0.205 mt), Mexico (0.20 mt), Australia (0.18 mt) and Russia (0.14 mt), even as Brazil’s production is anticipated to be 1.6 mt higher.

PRICE INCREASE

The tightening supplies are reflected in global futures price trends.

Raw sugar (No.11 contract at Inter Continental Exchange) is currently quoting at 11.70 cents a pound for October 2008, 13.65 for March 2009, 13.96 for May 2009, 14.03 for July 2009 and 14.27 for October 2009.

A similar price increase signal can be seen from London white sugar, which is ruling at $ 375.90 a tonne for December 2008, $ 392.50 for May 2009, $ 403.20 for October 2009 and $ 418 for March 2010.

But hardening world prices, in conjunction with a weakening rupee (which has shed Rs 6.35 against the dollar since end-March), may not really spur exports.

The reason for this is not only the Centre’s decision to withdraw subsidy on exports, i.e. internal freight re-imbursement of Rs 1,350 a tonne for mills in coastal States and Rs 1,450 a tonne for those in the hinterland.

“If you take the current export price of, say $350 a tonne, the loss of Rs 1,350-1,450 subsidy is more than made up by a Rs 2,222 gain through rupee depreciation,” a miller pointed out.

The more important export slowdown factor, he added, was better realisations from domestic sales.

DOMESTIC SALES

Ex-factory prices are now around Rs 15,000-15,500 a tonne in Maharashtra and Rs 17,000 a tonne in Tamil Nadu and Uttar Pradesh (UP).

On the other hand, the export price of $350 a tonne free-on-board translates into around Rs 16,200 a tonne at present exchange rates.

But from this, one has to deduct at least Rs 500 a tonne towards freight cost from a coast-based mill to the port and another Rs 400-450 a tonne on stevedoring and port handling charges.

The net export realisation will, then, be just about Rs 15,000-15,200 a tonne.

OUTPUT TO DROP

Moreover, with sugar production this season officially estimated to drop to 220 lt (the trade puts the number even below 200 lt) from the 265 lt of 2007-08, domestic prices may further go up in the coming months.

“In 2007-08, the record export shipments came on the back of abysmal domestic realisations. In the new season, better domestic realisations will automatically limit exports to about 10 lt,” the miller added.

And much of this would be on account of mills that are required to fulfil white sugar export obligations against past duty-free imports carried out under the advance licence scheme (ALS).

The outstanding ALS-related export obligation by companies such as Sakthi Sugars, Thiru Arooran, NCS Sugars, Sagar Sugar is reckoned at about 850,000 tonnes.