THE LACK OF DEMAND TO REDUCE RATES FURTHER
Sugar prices have witnessed a sustained decline since the beginning of the current crushing season in October 2017. So far this season, the benchmark variety ‘M’ has lost 18 per cent of its median value on expectations of a bumper supply for crushing seasons 2017-18 and 2018-19.
“The market is facing a huge supply glut. Sugar traders are offering lower prices to reduce inventory. Even mills have cut their offers on expectations of a further increase in their output. Sugar mills are under pressure to sell their inventory to clear cane dues. Prices are likely to remain under pressure throughout this year.
In the second Advanced Estimates, Forecast for the country’s total production is expected to be 30 mt for the 2017-18 crushing season compared with 20.3 mt in the previous year. With around 4 mt of carry-over stock, total supply for the current year is estimated at 34.0 mt.
“Considering lower sugar realisation from domestic sales as well as a muted global sugar market, mills are unable to generate sufficient funds for the payment of cane dues.
The country’s total cane arrears to range between Rs 160 billion and Rs 170 billion. Maharashtra and Karnataka each would have Rs 72 billion and Rs 25 billion dues, respectively.
The supply situation in India has an effect on the movement of international sugar prices. Though India is not the largest sugar exporter globally, the country offloads the sweetener when in surplus. During the sugar year 2017-18, the government has allowed 2 mt of sugar export in view of a 45.4 per cent year-on-year rise anticipated in production during the year. Also, sugar output from the European Union, China and Thailand is expected to rise adding to global sugar supply. This is likely to create pressure on international prices in 2017-18.
The international sugar prices have also declined 23.9 per cent from the $465.1-per-tonne-level in April 2017 to $354.1 per tonne in March 2018. The International Sugar Organisation (ISO) forecast global sugar surplus of around 5.2 mt for 2017-18 in March 2018. The ISO estimates world sugar production at 178.7 mt (up 6.2 per cent from 168.2 mt in 2016-17) and consumption at 173.6 mt (higher by 1.6 per cent compared with 170.8 mt in 2016-17) in 2017-18.
GOVERNMENT INTERVENTION
The government seems to be in a wait-and-watch mode at least for the time being, and feels that prices will automatically firm up with the exports, negating the need for incentives.
Though the industry will need more incentives to export sugar amid depressed international sugar prices.
The government had announced a mandatory export quota of 2 mt to move out some surplus stocks out of the country, but due to a depressed world sugar market, sugar importers were offering a price of around $350 per ton (around Rs 2,272 per quintal) at ports.
In global markets during April 2017-March 2018, white sugar prices in London averaged at Rs 25.1 per kg (year on year fall of 28.9 per cent) and raw sugar prices in New York averaged at Rs 20.6 per kg (year on year decline of 28 per cent), while small grade sugar prices in Mumbai averaged at Rs 35.9 per kg (year on year fall of 3.3 per cent).
An option doing rounds within the policy circles is to bring back production subsidy, which was introduced in the 2013-14 and 2014-15 sugar seasons that faced a similar glut, but was subsequently discontinued after domestic prices started firming up.
For 2013-14, the government had allowed a subsidy of Rs 3.3 per kg on export of raw sugar and extended subsidy to next year.
During 2014-15, the incentive was increased to Rs 4 per kg on export of raw sugar up to a maximum quantity of 1.4 mt.
BRAZIL CANE INDUSTRY BLASTS PAKISTAN, INDIA SUGAR EXPORT POLICIES
Brazil’s sugarcane industry took aim at policies undertaken by Pakistan & India to protect local producers and boost sugar exports, arguing they could further depress global prices.
Pakistan, whose stature as a sugar producer has been growing in recent years, in January quadrupled the volume of sugar eligible for export subsidies to 2 million tonnes in a bid to reduce excessive domestic supplies.
Eduardo Leão de Sousa, the director for cane industry group Unica said They’ve made their concerns known to the Brazilian government. They are speaking to their government and other countries over the possibility of action at the WTO.
Export subsidies could drive Pakistani farmers to rotate from rice to sugar, permanently boosting global supply and pushing down prices.
Pakistan is expected to produce around 6.5 million tonnes of sugar in the 2017-18 season ending on Sept. 30, In comparison, output at the world’s second-largest producer India is likely to reach a record 29.5 million tonnes, with local prices already falling by more than 17 percent over the last six months.
Facing a bloated domestic surplus, India scrapped a 20 percent sugar export tax and allowed millers exporting sugar this season to import raw sugar duty-free for the following two seasons through September 2021.
Even without that tax, however, high production costs mean India will likely struggle to export at competitive prices.
PAKISTAN SUGAR BEING IMPORTED IN INDIA
A Punjab (Faridkot) based wholesaler’s have been buying sugar from Pakistan @14.85 Per Kg (inclusive freight expense) after deducting the incentive given by Pakistan government.
There is a import duty of 100% on sugar, Therefore the sugar in India costs a wholesaler in Punjab @ 29.00-30.00 landed inclusive of all taxes, freights etc.
We worry sugar coming from Pakistan would depress the domestic prices amid excess sugar production.
