Advance licence holders gain from sugar export opportunity

With global sugar prices on the boil, mills would obviously jump at any opportunity to export rather than sell in the domestic market.

But with the Centre permitting only holders of advance licences (AL) to export – in fulfilment of their overdue re-export obligations – the handful of companies with these entitlements are taking full advantage of the opportunity thus presented.

Take Sakthi Sugars Ltd (SSL), which had, at the start of the 2010-11 sugar season (October-September), a pending re-export commitment of 1.63 lakh tonnes (lt). “Out of this quantity, we have already discharged the obligation in respect of 1.53 lt. That leaves about 9,700 tonnes, which we will fulfil by the second week of March”, said Mr M. Manickam, Managing Director, SSL.

The company's exports have been contracted at an average of $ 715-720 or Rs 32,500 a tonne, free-on-board (fob). After netting out freight from mill and port handling charges of around Rs 1,500, the ex-factory realisation works out to Rs 31,000 a tonne, which is more than the Rs 27,000-28,000 from domestic sales.

Ironically, SSL's current shipments are against ALs issued way back between November 2004 and June 2005. The AL Scheme requires mills to re-export one tonne of white/refined sugar for every 1.05 tonnes of duty-free imports of raw sugar, with this obligation to be discharged within 24 months of the license being issued.

Export obligations

While in the normal course, SSL ought to have discharged its re-export obligations some four years ago, domestic shortage concerns – prompting the Centre to repeatedly extend the period for fulfilment – prevented it from doing so.

It was only in September 2010 that the Centre – as a phased move to lift the ban on sugar exports – finally allowed AL holders to carry out their outstanding re-export commitments. The delayed permission has proved to be a blessing of sorts, considering that world prices are now ruling at all-time-highs.

According to Mr Manickam, out of SSL's 1.63 lt re-export obligation, about 53,000 tonnes would be done through other companies that have bought its AL entitlements. Excluding the third-party shipments – to be sourced from other mills – SSL would export 1.1 lt from its own sugar production of 2.6 lt this season.

“My production cost of sugar will be roughly Rs 26,000 a tonne. It would Rs 24,000, if realisations from co-generation and other by-products are taken. Against this basic cost, my margins from exports are certainly higher”, he noted.

Southern millers to gain

SSL is, however, not the biggest AL holder. That position belongs to Thiru Arooran Sugars Ltd, which, along with its associate, Shree Ambika Sugars, has re-export commitments of 2.02 lt.

“We will be exporting about 1.55 lt on our own and the balance 45,000 tonnes through third parties”, the Thiru Arooran Group Chairman, Mr Ram V. Tyagarajan, told Business Line . The 1.55 lt exports would account for over 70 per cent of the Group's expected production of 2.2 lt this season.

In all, the outstanding re-export obligations against ALs to be discharged by March 31, 2011 are estimated at almost 10 lt. The bulk of this is held by southern millers, including also Sagar Sugars (1.6 lt) and Dharani Sugars (70,000 tonnes).

The only significant AL holder in the North is Simbhaoli Sugars, which will be able to export 45,000 tonnes of its 2.2 lt production. “Since we are exporting better-quality refined sugar of 45 ICUMSA, our average realisation is about $ 775 or Rs 35,000 a tonne, which comes to Rs 33,000 ex-factory. This is against a production cost of Rs 27,000 and domestic sales realisation of Rs 28,500-29,000 a tonne”, said Mr Sanjay Taparia, Chief Financial Officer of the company.

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