ChiniMandi Exclusive: “Coronavirus effects on Sugar Industry” by Yatin Wadhwana – Strategy Consultant & Trader

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With coronavirus continuing its parade around the world,experts around the sugar industry are trying to throw light on the darker visibility. Undoubtedly poor cash flows to sugar mills, piling sugar stocks and halted exports have made the situation worrisome, however people are curious to impending scenarios in the sugar industry around the world.

In conversation with ChiniMandi News, Mr.Yatin Wadhwana – Director at Gradient Commercial Pvt. Ltd shared his views on his outlook about the sugar industry that has been triggered by Cornonavirus outbreak.

Excerpts:

1. COVID-19 outbreak has spinned off impacts to the global economy, how would you define the short term and long term impacts in the Indian sugar industry?

The main short term impact on the Indian Sugar Industry due the outbreak of the COVID-19 virus and the subsequent lockdown announced by the Government of India will be to maintain their production.

While the supply of cane will remain under their control, and the harvesting labor would also be persuaded to continue operations, the problem they will face is the availability of other inputs required to keep their operations running, like lime, empty bags, etc.

With the lockdown the supply of these inputs which come from outside their respective districts/states will be disrupted in the very short term. Once the mills shut, they will loose their harvesting labour as well as the seasonal labour until the lockdown is rolled back (the timing of which at this stage is uncertain). The evacuation of the finished products, both sugar and ethanol will also be disrupted due to the non-availability of trucks. One expects that these disruptions should be short term, until the necessary orders are passed by the various local administrations to their respective posts/borders and suitable facilities are put up for truckers on long haul routes.

In the longer term the impact is difficult to assess at the moment, as the time frame of this disruption/lockdown is still unknown. Planting of cane which is done post the Rabi crop is likely to be impacted if seed and fertilizers are not made available on time, which could impact the next crop. If supply of fertilizer remains disrupted for any elongated period of time, it will impact yields and quality of cane for the next crop. However, this can only be assessed once the restrictions are lifted.

2. What steps do you think the Govt. may have to take to ensure the industry is running smooth in terms of reducing sugar stock piles, exports taking place?

The Govt. has to have a mechanism to coordinate with the various States that interstate movement of raw materials is not disrupted. As already mentioned, empty bags and lime are the 2 major items which are not available within the sugar producing states.

On the export front while the Govt. has notified Ports as an essential service the problem is that while the Ports & Customs remain open, the goods need to reach the Ports and be unloaded and loaded into containers and vessels for which Labour is not available because they have either been sent home or are too scared to coming to work due to the messaging done by the local authorities.

3. Do you feel India would no longer be a eye-watched player in the global market?
India will still be watched in terms of what will finally get exported. Given the break down in logistics there are still about 1 million MT of sugar that has been sold but not shipped. If the sugar cannot be shipped it will have to be replaced from other origins. In addition, the world will now start looking at the next Indian crop, which was originally supposed to be bigger than the current crop and any change in that will also impact the world market. So, yes, India will continue to remain relevant in the world market for the near future.

4. What are your numbers of global consumption and Indian sugar exports juggled to after the outbreak?
With Corona Virus outbreak, the consumption of sugar will see shift in consumption patterns. The overall impact would still have to be assessed, in that there will be a short term reduction in sugar consumed, but some processed food industries should see a rise, like biscuits/cookies, instant foods, jams, juices, etc. while consumption through sweet meat shops and halwais (sweet vendors) will see a drop. As of now the global impact is being seen at about 1.5 million MT. In India we an impact of about 0.5 million MT.

Indian Exports will be impacted by both a drop in world prices and disruption of logistics. We believe that about 3.8 million MT has been contracted, out of which about 2.8 million MT should have been exported. It seems that some portion of the 1 million MT will run into problems and further contracting will be suspended until the lockdown situation is clearer.

5. What are your views on the global outlook and importantly where do you see India stand?
The world market, which has dropped dramatically since the middle of February 2020, on the back of a crash in Crude Oil prices and the anticipated shift of sucrose from Ethanol to Sugar in Brazil, seems to have found a bottom and has delinked itself from the price of Crude. Even though Brazil is expected to make up the shortfall created by Thailand, the sugar from Brazil will only be available from June onwards.

Which means that there is a tightness in supply in the near term. With Indian supplies also under a cloud due to its lockdown the world market should improve. The one big potential event that no one is addressing at the moment is that, even though Brazil may have the sugarcane/sugar, will the mills get enough manpower to operate and will they be able to transport the sugar to the Ports. As you are aware Brazil has taken a completely opposite view about the Corona Virus and has not taken any strong measures to try to isolate their population. A serious outbreak of the virus in Brazil could put a large portion of their workforce out of action.

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