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The government support will be crucial for successful implementation of the targeted sugar exports, otherwise current low global sugar prices will render exports unremunerative for the millers, said ICRANSE -0.09 % on Thursday.
Given a significantly higher-than-anticipated domestic sugar production for sugar year 2018 (SY2018) which resulted in a downside correction in sugar prices, to a low of Rs. 28,500 per metric tonne (MT) in April 2018 (all prices quoted in this report are ex-mill UP), the government has allowed for sugar exports of 2 million MT during SY2018.
Elaborating further Mr. Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, says, “Domestic sugar production for SY2018 is set to cross 30 million MT, an increase of around 45% – 50%, from 20.3 million MT in the previous year. This has been driven principally by a recovery in production in Maharashtra, North Karnataka and Uttar Pradesh (UP). ICRA expects domestic sugar consumption to increase to around 25.0 million MT in SY2018 from 24.5 million MT in SY2017. Hence, with the expected increase in sugar production in SY2018, it would be higher by at least 5 million MT than the estimated consumption. Hence, to clear the surplus stocks and improve the cash flow of the sugar mills and support them in clearing the cane dues to farmers, the Government has announced the sugar exports of 2 million MT.”
In March, 2018, the Food and Consumer affairs (FCA) Ministry has allowed for sugar exports of 2 million MT under the Minimum Indicative Export Quota (MIEQ) scheme during SY2018. Under this scheme the export quota has been fixed, taking into account the average production of mills achieved in the last two years and up to February of this marketing year. The Government has also allowed the export of white sugar till September 2018 under the Duty Free Import Authorisation (DFIA) scheme, whereby exporters are allowed to import sugar at zero duty within three years.
“The successful implementation of the MIEQ scheme is dependent on the export incentives the state or central government would provide like in the previous years such as SY2015 (export subsidy of Rs. 4/kg) and SY2016 (production subsidy of Rs. 4.50/kg), given the prevailing low international sugar prices. In the current scenario, the international sugar prices are hovering at around $350/MT, which adjusted for transportation costs and the sugar exports per MT would fetch around Rs. 18,000 – 19,000/MT, lower by around Rs. 9,000 – 10,000/MT compared to the prevailing domestic sugar prices. Hence, the sugar mills have not started exporting sugar as they would have to incur upfront losses. In view of this, in Maharashtra, the state government is planning to provide Rs. 5/kg subsidy to export the produce,” said Majumdar.
Further, even after meeting the target of exporting 2 million MT, the domestic industry is likely to have around 1.5 – 2.0 million MT of excess sugar stock than the normative sugar stock of 5.5 – 6 million MT for the next season. Hence, while the sugar prices are likely to improve with the successful implementation of MIEQ, any significant increase from the current levels can be ruled out given the continued over-supply scenario in the domestic market.