Sugar prices are likely to rise in the near term because of supply restrictions on the back of government's move to raise import duty to 50 per cent from the existing 40 per cent.
The government, early this week, raised the import duty on raw sugar following the recent decline in global sugar prices and the improved outlook for domestic sugar production for the upcoming sugar year (SY) 2017-2018 beginning October.
Global sugar prices have largely followed expectations on global supplies. Low sugar import demand from India and global surplus expectation in 2017-18 on account of increased production from Brazil and India, have resulted in a fall of global sugar prices from around $540-$550 a tonne in January-February 2017 to $510 a tonne in March 2017. And, further down to $445 a tonne in May 2017.
"The recent hike in the import duty is a positive for the industry, which is likely to support the domestic prices in the near term. This, in turn, will help sugar mills clear cane arrears to farmers. It may be noted that given the recent increase in the fair and remunerative (FRP) cane price for the coming season, a significant fall in domestic sugar prices was a possibility; had further imports (in addition to the recent 0.5 million tonnes duty free imports) been allowed, same could have adversely impacted the margins and the liquidity of sugar mills," said Sabyasachi Majumdar, senior vice-president & group head, Icra Ratings.
Earlier, in April 2017, the Centre had allowed duty-free raw sugar imports of 0.5 million tonnes (mt) till June 12, 2017, with an aim to check the rise in domestic sugar prices by maintaining adequate domestic sugar supplies. This move had a limited impact on sugar prices, which continued to remain firm on account of the tight stock situation in the domestic market.
As for sugar production in the country, it is set to increase by 16-20 per cent in SY2018, to around 23.5-24.5 mt. This growth will be driven largely by the sugar production rise in Maharashtra and Uttar Pradesh.
The closing stocks for SY2018 are likely to be around 4-4.5 mt, which would be sufficient before the production of the following season comes into the market, limiting the need for sugar imports into the country.