Sugar exports from India have turned viable, with international prices firming up considerably alongside rising demand for whites ahead of the Ramzan season.
In the last one month, raw sugar futures in New York have climbed from below 20.5 cents to over 24 cents a pound, working out to an increase of about $80 a tonne. During the same period, the August white sugar contract at London has shot up even more, from roughly $ 580 to $ 695 a tonne.
A leading trader, who deals on behalf of Indian mills, claimed he has received enquiries for sugar of 100 ICUMSA – which is of less premium quality compared with the 45-ICUMSA refined whites traded in London – at $740 or Rs 33,100 a tonne free-on-board, Mumbai. “Refined sugar from India will easily fetch another $ 30-40 now”, he said.
On the other hand, the ex-factory price of S-30 sugar in Maharashtra is currently about Rs 24,500 a tonne. Adding another Rs 2,000 towards freight and handling charges at the port would take the total cost of exportable sugar to Rs 26,500 a tonne. “Even if you pay mills a premium of Rs 5,000 to buy their export quota and factor in a four per cent DEPB (duty entitlement pass book) benefit, there is margin to be made,” the trader added.
The recent spurt in world sugar prices reflects two factors. The first is production in Brazil, trailing initial estimates on account of the delayed start to crushing operations as well as an increased share of the crop going towards ethanol manufacture (60 per cent against the average 55 per cent for the year ended March 2011).
The higher diversion rate is, in turn, linked to crude prices that have remained at $ 100-a-barrel and above for a sustained period. High crude prices have acted as a support for sugar, preventing its decline below a certain minimum level.
Raw sugar in New York briefly threatened to plunge below the 20 cents/pound mark in early May – against the record 35.31 cents touched on February 2 – but recovered subsequently to the current 24 cents (see chart). Mills in Brazil are now realising around 1,200 real on every kilo-litre of ethanol sold domestically, which translates into a raw sugar equivalent price of 22.5 cents a pound or thereabouts.
The second factor relates to the short supply of white sugar (relative to raws) in the world market. This is captured by the price difference between London whites and New York raws, which has risen to some $ 165 a tonne on the back of demand from West Asia and North Africa.
“These countries usually stock up sugar for the Ramzan period. This time, most of them started with low inventories in view of the high prices prevailing earlier in the year. Their entering the market now has been a bullish factor”, the trader pointed out.
All this opens up opportunities for the country to export sugar, though the Centre has restricted that window to 500,000 tonnes. And of this total quantity permitted for shipments under the open general license (OGL), the Sugar Directorate has already issued export release orders for 372,809 tonnes.
Given the remunerative realisations involved, the entire OGL quota is likely to be used up within no time. Whether the Centre will allow additional exports after that is a moot question.