Bittersweet news for sugar

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EXPORTS MAY reduce the pile-up.
EXPORTS MAY reduce the pile-up.

Sugar stocks have barely reacted to the government decision to partially lift the export ban on sugar, imposed six months ago. Not surprising, as the relaxations have not come at an opportune time for the players.

Global sugar prices have dropped by about 30 per cent from June, when the ban was imposed, and current price levels make exports much less attractive now. At prevailing price levels of $350 a tonne, exports may fetch about the same realisations as domestic sales, instead of the significant premium expected in June.

Lower export realisations also mean that South-based sugar mills, situated in close proximity to the ports, would be better placed to exploit the opportunity than the North-based factories, for whom freight would add on to shipping costs.

There is also the matter of the ban being lifted only partially. Only players who have already imported sugar and thus have re-export obligations have been allowed to export as of now.

From the industry perspective, the biggest benefit of this partial relaxation could be that it provides an additional outlet for domestic supplies. With sugar production expected to recover to 22.7-million tonnes this year, impending supplies have already been weighing on domestic sugar prices.

The shipping out of about 1 million tonnes by way of re-exports could ease some of the pressure on prices, contributing to better earnings prospects for players.

Aarati Krishnan

(This article was published in the Business Line print edition dated December 24, 2006)
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