The Hindu Business Line : Economics of raw sugar imports

Consider the best-case scenario of an efficient mill located near a port and having a coal boiler that can undertake processing in the off-season when bagasse is not available.

The current 15.05 cents a pound price in New York is for raws of 96-degree polarisation (pol), which is a measure of sucrose content or purity of the sugar.

Since the raws imported by Indian mills from Brazil are of 99-plus polarisation, there is a 4.05 per cent ‘pol premium’ payable taking the price to 15.65 cents or $345 a tonne.

After including $45 freight from Brazil and $5-6 of financial costs (LC opening charges, brokers’ fee, etc), the landed cost in Indian ports would come to $395 or Rs 19,800 a tonne.

Stevedoring and port handling expenses at Tuticorin are about Rs 310, excluding Rs 70 on account of a two-tonne jumbo bag (into which the sugar from the vessel is discharged) and Rs 25 of port godown charges. Transport of the raws from port to the mill (not being identified here) will cost about Rs 460.

Coming to the processing side, for every one tonne of raw sugar, the mill would consume two tonnes of steam (700*2 or Rs 1,400) and 70 units of electricity (Rs 466 at Rs 6.66 a unit, which is the opportunity cost of selling co-gen power to the grid).

Further, there are various non-utility expenses (chemicals, labour, overheads) totalling Rs 125, though these would be more than offset by the value of molasses (Rs 200) recovered as a by-product of processing the raw sugar.

The total cost of discharging, transporting and processing the imported raws, thus, works out to Rs 22,456 a tonne. The raw sugar that is processed will, however, yield only 95 per cent whites. The effective cost of the white sugar that is produced from the imported raws will be higher, at Rs 23,638 a tonne.

Adding to this bagging and storage charges of Rs 750 – a 100 kg bag costs Rs 50 – takes the final ex-factory cost to almost Rs 24,390 a tonne.

And this, without taking into account any interest costs or profit margins.

Needless to add, the costs would be much higher for mills in the hinterland.

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