Fortnightly Gyan by Indian Sugar Guru, Yatin Wadhwana – Episode 2

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INDIA HEADING FOR A RECORD CROP DESPITE DIVERSION TO ETHANOL

As at the end of Nov 2020, Indian Mills had produced 4.29 million MT v/s 2.07 million MT on the same date last year. Clearly the crush has started off with a bang, especially in Maharashtra and Karnataka which have seen an increase in acreage with 2 good monsoons in 2019 and 2020. The initial reports from both these states suggest that both the Agricultural and Sugar Yields are significantly better than the previous year and much better than the 5 year average.

With 2.66 bln Ltrs of Ethanol being allocated for purchase by the Oil Marketing Companies (OMC) v/s a supply of 1.67 bln Ltrs in the previous season, the diversion of sugar to ethanol is expected to be 1.74 mln MT v/s about 733 kMT in the previous season. This diversion could increase with the subsequent rounds of Ethanol purchase by the OMC’s.

However, despite a much higher diversion of Sucrose to Ethanol the Sugar Production should touch the previous record of 33.2 mln MT and even exceed it. This is a view that I have maintained since early Oct. and it seems that other analysts are also coming around the same view.

BEARISHNESS CONTINUES IN THE DOMESTIC MARKET

With the production in full swing the Domestic Market continues to remain under pressure despite a smaller quota for Dec at 2.15 mln MT compared to 2.35 mln MT for Nov. 2020. Traditionally the months of Dec and Jan tend to be low consumption months due to lack of weddings and the cheaper availability of alternative sweeteners like Khandsari & Gur. In the absence of any Export Incentive from the Govt. the bearishness prices is likely to continue. (Remember Godot from the last Episode??) While the prices had touched Rs 30,100 PMT Ex-Mill, one would not be surprised if the market breaks 30,000 PMT ex-Mill and even touches 29,500 Ex-Mill before the end of the year. Will that be enough to push mills to export even without a subsidy?? There are rumours that some quantities have traded for very prompt delivery sugar but bulk quantities are not likely to move until the domestic price drops to 26,000 or 27,000 ex-Mill, or the World market rallies to $450 to 480 PMT levels.


INTERNATIONAL MARKET IS IN HOLDING PATTERN

After an initial rally the NY No 11 Raw Sugar market stalled at just below 16 cents, trading down to 13.80 levels before recovering to just under 15 cents. It seems that the world has moved beyond Indian Sugar. The demand from China, which was one of the reasons for support in the market seems to be drying up. The Thai crop seems to have recovered and is now being talked back up thanks to late rains. The recent rains in Brazil have also eased the stress on the crop being felt there. Increasingly it seems that the World market is not likely to rally to a level that will pull Indian Sugar out, but that the Indian Domestic market will fall to a level that will Push Indian sugar out.

The biggest fallout of a situation where the Indian prices collapse is the ability of the Mills to pay their cane dues. Rising cane arrears would only add to the woes of the Indian Govt. which is already facing an unwarranted agitation from the Wheat & Paddy Farmers of Punjab & Haryana.

Click here to read Episode 1

Indian Sugar Industry Guru – Mr. Yatin Wadhwana is a strategic consultant and trader with over 35 years of experience. He is Director at Gradient Commercial Pvt. Ltd. which undertakes strategic trades, consultancy and advisory roles. Apart from sugar, he has also been involved in Supply Chain Management, Logistics and the trade of other agri-commodities including wheat, rice and soybean.

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