As Thailand production rebounds, Indian sugar exports set to face competition this season

After having shipped out a record 7.3 million tonnes (mt) last season that ended the previous month, India is likely to export about six mt of sugar during the current new season (October 2020-September 2021), industry officials and experts have said.

But Indian exporters will have stiff competition from Thailand, which is expected to rebound in the global market, besides Australia, they said addressing a webinar organised by Indian Sugar Mills Association (ISMA) - a body of private mills.

33% output rebound

“Thai sugar will give competition to Indian, especially due to the high freight differential ($15-$20) for destinations such as Indonesia. India needs to price its sugar to match Thai offers,” said Ravi Krishnamurthy, Head - Indian sugar- COFCO International.

This is in view of production in Thailand projected to rebound by 33 per cent to 10 mt this season, he said.

“The world sugar market currently needs India’s surplus and is willing to pay India’s MSP (maximum sale price of ₹31,000 a tonne) to buy its sugar,” said Martin Todd, Managing Director of global agribusiness market and intelligence firm LMC International.

But, the current futures price trend indicates the market will not pay the MSP. “So, will India export less and/or export with subsidies?” Todd wondered.

Another year of deficit

Peter de Klerk, Chief Economist, International Sugar Organization (ISO), presenting ISO’s perspective, said sugar production will be in deficit for the second consecutive year this season, while consumption is set to recover. This will be key to Indian sugar exports this season.

Indian production is likely to be around last season’s level, while an attractive cane price in Thailand is helping the farmers there to switch back to the sweet crop. Australian, Pakistan and Mexican production are likely to recover, Klerk said.

After taking into consideration domestic consumption of three mt in Thailand, it would have seven mt of surplus sugar to export. It is expected to export 2.5-3 mt more sugar than last year, COFCO’s Krishnamurthy said.

Thailand left a huge gap in the Indonesian sugar market last season, which was convenient for India but this season, Bangkok will export at least three mt of sugar more than last season. Indonesia will be the natural outlet for Thai sugar, said LMC’s Todd.

New Delhi-Jakarta deal

India and Thailand, in particular, would be competing for the Indonesia market, which imported 1.7 mt of raw sugar from New Delhi. Besides these two nations, Australia will also compete for market share there, Krishnamurthy said.

Todd said Indonesia has continued to source more raw sugar from India following a political agreement covering palm oil and sugar. It helped offset the drop in shipments from Thailand last season.

Though Brazil and Thailand will export 4-5 mt of more sugar this season, the LMC International official said Brazil exports will pick up only from mid-2022. “This will leave space for India and Thailand and take advantage of the current price surge,” he said.

According to Eric Cheng, Regional Manager (Asia) of Brazilian sugar firm Alvean, said raw sugar prices in New York are expected to trade at a premium to Indian prices and will help the country’s shipments. Prices could continue to rule at elevated levels until early next year.

Krishnamurthy said India and Thailand are likely to compete for Malaysian market share too. Last year, Malaysia imported one lakh tonnes of raw sugar from India.

High freight rate effect

Bangladesh will import a good volume of sugar from India, which will be preferred over Brazil in view of high freight rates, the COFCO official said. Last season, Bangladesh imported 2.25 mt of raw sugar from Brazil and India besides one lakh tonnes of white sugar from India.

This season, Dhaka would become a “huge (Indian) raw sugar importing country in the Indian subcontinent”. “Due to shorter transit time and freight differential, Indian raws become economically viable for Bangladesh,” Krishamurthy said, adding that the sugar stock situation in Bangladesh remains tight.

However, one feature of sugar exports from India during the current season would be that they will not need any government support since the commodity’s global prices are likely to rule at India’s MSP level.

“The sugar market requires Indian supply this year and there is no need for government assistance,” said LMC’s Todd.

Export assistance

According to the All India Sugar Traders Association, Indian mills have already signed deals to export 1.5 mt without any government support.

Last season, the Centre gave an assistance of about ₹6,000 as incentive for every tonne of sugar exported up to 5.7 million tonnes till May 20 this year. Another 30,000 tonnes exported after May 20 got assistance to the tune of ₹4,000. The exports resulted in an outgo of ₹3,500 crore for the Union government.

The remaining 1.3-odd mt of sugar were shipped out without any government assistance as the high global prices made them feasible for Indian mills. Compared with the assistance provided last season, sugar exports fetched an aid of ₹9,500 a tonne totalling ₹6,300 crore in 2019-20.

Prices of raw sugar are currently ruling at 19.80 US cents a pound (₹33,000 a tonne) on the Intercontinental Exchange, New York. Sugar prices have surged over 40 per cent year-on-year on lower supplies from Brazil and Thailand coupled with higher demand across the globe.

White sugar, on the other hand, is quoted at $507.50 (₹38,000) a tonne in London. While raw sugar prices have come down a tad from the over 20 cents in August, white sugar prices are ruling higher compared with the same period.

Set to be regular shipper

Alvean’s Cheng said India is no longer the threat to the world sugar market price as it used to be earlier. This is because global market prices are likely to stay firm to connect Indian exports.

“The record domestic export programme of 2020-21 at over seven mt is a testimony of the strong global sugar import demand. The weaker India fiscal position post-Covid makes export subsidies a more challenging proposition,” he said

Adhir Jha, Indian Sugar Exim Corporation Managing Director and Chief Executive officer, in his presentation, said global prices are higher than the same period a year ago, encouraging sugar mills to contract exports.

“India will be a regular exporter of sugar, though the volume could be low,” he said.

Abinash Verma, Director-General, ISMA, said India’s sugar production is likely to be 31 mt this season against 31.1 mt last season, while exports are likely to be six mt (7.1 mt) with the carryover stocks likely to drop to seven mt (8.5 mt).

Brazilian factor

Eduardo Souza, Executive Director of Brazil Sugarcane Industry Association Unica, said production in the South American country this season would be 26.83 mt (29.18 mt last season). Climatic conditions have affected sugarcane production with sugar yield dropping by 1.6 per cent to 62.26 kg for a tonne of sugarcane.

Brazil production has also been affected by growers shifting to other crops, but the situation is positive for the South American nation with prices being attractive for sugar.

However, production in Centre-South Brazil is likely to be affected due to cane yield dropping by 70 tonnes per hectare and industrial yield slipping to 135 kg of sugar from one tonne of sugarcane.

Todd said Brazil and Thailand’s recovery would continue into 2023, when the world market would need less Indian sugar than today. However, he said the scenario of Brazilian sugar exports for next year is still unclear.

Cheng said sugarcane crushing in Brazil declined by 85 mt to 520 mt and it will not recover easily next season. Problems in Brazil’s Centre-South will have a longer impact in the medium to long term, he said.

The Alvean official said the structural deficit in the sugar market will persist longer, supporting sugar prices.

This could be a sweet news for the Indian sugar industry.

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