A nearly five-million tonnes (mt) sugar deficit projected by the International Sugar Organization (ISO) is likely to keep sugar prices firm this season (October 2020-September 2021) with Brazilian shipping woes likely to help India’s cause to export more of the commodity.
The ISO, in its quarterly outlook, has raised the sugar deficit during the current season to 4.782 mt from its earlier estimate of 3.50 mt three months ago.
This will see production dropping this season by 1.24 per cent to 169.04 mt (171.16 mt), while consumption is seen increasing to 172.82 mt (170.24 mt).
This will also see a cut-down in end stocks by 4.91 mt to 92.69 mt this season.
This comes at a time when raw sugar in New York has dropped to 16.10 US cents a pound (₹26,225) a tonne, down about 12.5 per cent from a week ago. However, prices are up four per cent since the beginning of 2021.
Raw sugar prices had topped 17.41 cents a pound (over ₹28,375 a tonne) in the third week of February.
On the other hand, white sugar is currently quoted at $462.20 a tonne (₹33,900) in London compared with $480.30 (₹35,000) in the second week of February.
“Prices had increased sharply and dropped on expiry of March contracts resulting in sudden sell-off. Otherwise, chances of the market falling are slim,” said Rahil Shaikh, MEIR Commodities Managing Director and Vice-President of All India Sugar Traders Association (AISTA).
Prices dropped on expiry of March contracts since funds cut their speculative holdings in the counter, resulting in the number of contracts being held dropping by about three lakh.
“Global prices jumped sharply and closer to expiry of March contracts, there has been a cut in the positions people were holding. Now, prices reflect the May contracts and that’s why there is a feeling of drop in sugar prices,” said Abinash Varma, Director-General of Indian Sugar Mills Association (ISMA).
“The sell-off by funds has been profit-booking. The core sugar traders are still invested in the commodity,” said Praful Vithlani, AISTA President.
Brazil’s logistics woes
Indian exports are still competitive in the global market and enjoying some advantage in view of the problems Brazil is facing in shipping soyabeans that could extend to sugar.
“Brazil’s problems are already helping Indian exports and keeping (raw sugar) prices above 16 cents,” Shaikh said.
Since the Union government announced an incentive of ₹6,000 a tonne for sugar exports, at least 3.2 mt of the commodity have been contracted for shipments abroad.
“We are yet to get the latest data but we should have contracted 33 lakh tonnes,” said Vithlani.
The Centre has allocated ₹3,500 crore this season as incentive for sugar exports with the industry hoping to export up to six mt. This is against an average export incentive of ₹9,750 a tonne extended by the Government, totalling about ₹6,300 crore.
Last year, the export incentive helped in exports of 5.7 mt of sugar.
Though the industry had looked forward to exporting 60 mt this season, logistics problems have affected shipments.
“We are facing problems in the movement of sugar from mills to ports and from there to the export destinations. Moving sugar from mills in Mahrashtra is proving to be a challenge,” said ISMA’s Verma.
Trucks from the western State are carrying various agricultural produce to the port and thus availability of trucks is an issue.
“Even at the ports, sugar is not a priority for exports. On top of this, containers are not available to export white sugar,” the ISMA Director-General said.
“Shipping problems continue to affect sugar exports and we see no improvement till now. The situation could improve after the second week of April,” said AISTA’s Vithlani.
“But 3.2 mt have been contracted in two months’ time since the incentive was announced out of the six mt target. This is something excellent,” said Verma.
“So far, 1.6 mt have been lifted from the sugar mills for onward shipping from ports,” said Vithlani.
“We are offering raw sugar at $405-410 a tonne which is competitive compared to other sellers. The global market seems to be totally depending on Brazil for supply. The problems there are turning trades to India,” Shaikh said.
India is now exporting sugar, both raw and white, to Indonesia, Dubai and Africa.
“Thailand’s output is down by 50 per cent in the last three years. Therefore, India stands a good chance to fill in the void caused by Thailand in Indonesia,” said Verma.
“Thailand’s production has declined to seven mt from 14 mt three years ago. That has resulted in a monopolistic trend in the market,” Shaikh said.
Exports hold key to the sugar industry’s health in India, particularly when the carryover stocks were a high 11 mt from last season. Sugar shipments, besides infusing liquidity in the industry, will also help mills pay the dues for cane supply to farmers.
According to sugar industry sources, Uttar Pradesh mills owe about ₹12,000 crore to farmers towards supply of cane last season and this season.
The Centre told Parliament in September last year that the total dues to farmers from mills were ₹13,000 crore.
Exports are also necessary as this season, sugar production is estimated higher at 29.9 mt by AISTA and 30.2 mt by ISMA against last season’s 27.40 mt.
AISTA has projected exports at 43 lakh tonnes, while ISMA is still looking at the 60 lakh tonnes target.
Despite exports, the carryover stocks from this season are expected between 8.9 mt (ISMA estimate) and 10.6 mt (AISTA estimate).