Sugar mills' rush to export dampens prices

The Sugar Directorate's order permitting exports of 5 lakh tonnes of sugar on open general licence (OGL) is well timed to help sugar mills take advantage of the relatively higher prices in the international markets. But the rush to avail of this opportunity is having a dampening effect on prices.

This has evoked a mixed response from mills.

With domestic prices ruling at about Rs 2,900 a quintal, exports could fetch mills about Rs 3,200 ex-factory, say industry representatives. However, according to one exporter, with sugar mills under compulsion to export under the Advance Licensing Scheme and with the OGL opportunity now, prices have dropped by about $30. For instance, mills that had contracted for sugar exports at about $735 a tonne (Rs 33,075), are now hit by other mills finalising deals at about $700. They are taking advantage of the 4 per cent DEPB benefit available for exports under OGL, the exporter said.

Global markets

A fortnight back, sugar prices in the international markets had been over $800.

Another sugar mills official said there is a clear gap between international prices and what is actually contracted for exports. The order by the Union Food Ministry passed on January 1, covers mills across the board as the five lakh tonnes has been distributed on a pro rata basis to over 50 mills. Of the 661 sugar mills in the country, all except about 120 units, which are either not under operation or are new units set up in the last one year, have received export quotas. It is based on the average of each mill's sugar production in the last two or three years.

One benefit is that it could will help market sentiment and stabilise prices, feel sugar mills. Also, the OGL quota is in addition to exports of about 10 lakh tonnes to be exported by March, of which, about 6 lakh tonne has been exported under the Advance Licensing Scheme and the monthly releases for the domestic market.

This means additional liquidity for the mills.

The OGL order also allows mills to sell their licence, which will help mills not exposed to the export market tap this opportunity. With the export quota ranging from less than 50 tonnes in some cases to more than 4,000 tonnes for some of the larger mills, some of the small quantities are bound to be pooled or the licenses will hit the market. Sugar exporters including the Indian Sugar Exim Corporation Ltd are gearing up for exports.

Tamil Nadu

In Tamil Nadu, of the total of about 42,800 tonnes of sugar allowed for exports by the mills, about 11,000 tonnes is to be exported by the cooperative and public sector sugar mills, and the balance by the private sector. The private sector mills are keen on the move, and according to an industry representative, the cooperative sector is likely to take a decision soon.

However, a concern is the recent fluctuation in the international markets, they say. So traders are cautious and there is a “disconnect between international market prices and what the traders are willing to offer,” said an industry representative.