Harish Damodaran

New Delhi, Feb. 9

WITH domestic ex-factory sugar realisations ruling firm at Rs 16.50-17 a kg, processing of duty-free imported raw sugar has become a viable proposition for mills.

While import of raw sugar stood at only 1.24 lakh tonnes (lt) during the 2002-03 season (October-September) and 5.53 lt during 2003-04, in the current season, a total quantity of 12.18 lt has so far already arrived or awaiting discharge in various ports.

Traders said the total contracts entered for the season would be close to 20 lt and in the next few days alone, two large Panamax vessels handling 60,000 tonnes each were scheduled to arrive from Brazil at the Mundra port. "These would be the biggest single sugar import consignments to land in the country. Till now, the maximum vessel sizes we had were in the 40,000-tonne category," they added.

The benchmark No. 11 raw sugar futures at the New York Board of Trade (NBOT) for May 2005 closed on Tuesday at 9.42 cents a pound or $207.67 per tonne free-on-board. This translates into a landed price of Rs 11.50 a kg here.

According to Mr M. Manickam, Managing Director of the Coimbatore-based Sakthi Sugars Ltd, the cost of processing this raw sugar even in the off-season (when baggase availability drops and mills have to use coal or lignite to run their boilers) would be Rs 2.50 per kg, inclusive of port handling and internal transport charges, refining losses, bagging expenses, etc.

The total cost of processing sugar imported at zero duty against advance licence, thus, would be roughly Rs 14 a kg. It would be further lower by Rs 0.50-0.75 per kg in the main crushing season, when the imported raw sugar is mixed along with the cane juice and mills can use the `free' steam generated from baggase (a by-product).

With ex-factory white sugar prices ruling now at Rs 16.50-17 per kg, mills stand to make Rs 2-3 a kg margin on processing imported raw sugar. The economics was not so favourable even three months back, when ex-mill realisations were in the Rs 15 a kg range.

Significantly, over three-fourths of the raw sugar imports of 18.95 lt since September 2003 have been made by southern mills, with Sakthi, Renuka Sugars, Thiru Arooran, EID Parry and Dharani being the major players. Sakthi alone has imported 1.4 lt during the current season and "we will import another 90,000 tonnes in the remaining months," Mr Manickam said. Thiru Arooran expects to import 1.8 lt in the 2004-05 season, having imported a similar quantity last season.

On the other hand, mills in the North did not import any raw sugar till May 2004, when Dhampur Sugar brought in its first consignment of 26,000 tonnes to Kandla. Dhampur has been the only large importer outside the South, though others such as Simbhaoli Sugars, Balrampur Chini and KM Sugar in Uttar Pradesh and the Maharashtra-based Natural Sugars, Warana and Pravara factories have also contracted small cargoes in the current season.

The southern mills are able to handle larger imports as many of them have stand-alone refineries that can process raw sugar in the off-season. There are few northern mills, barring Dhampur, that have this facility. "Last year, we imported our entire quantity after April. This time, too, bulk of our imports will be after the peak crushing period," said Mr Ram Thyagarajan, CMD, Thiru Arooran Sugars.

Moreover, mills in the South also have co-generation plants. Since these plants have to run round the year in order to be viable, they use lignite during the off-season, which provides the steam for processing raw sugar. The cost of boiler fuel, in turn, is recouped through electricity sales to the grid.

(This article was published in the Business Line print edition dated February 10, 2005)
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