Global cues may push up sugar prices

Domestic price up 4% in wholesale markets; Maharashtra govt may offer export sops

Sugar prices are likely to move up in local markets following global trends and the possibility of exports incentives by the Maharashtra government.

Against a four per cent increase to Rs 33.5 a kg in the local wholesale markets so far in 2016, sugar prices are up 18 per cent in the world market.

If prices rise further, it would be a breather for crushing mills. Barring a couple of sporadic instances, prices have remained way below production cost during the past four years. Most mills incurred massive losses in the past few financial years. Both the central and state governments have announced incentives to save mills from going bankrupt.

“Of late, sugar prices in India have started following the global trend. Over the past few months, sugar prices have moved up significantly in global markets but lagged locally. From now on, sugar prices would move up in local markets,” said an analyst with one of the largest trading firms.

International Sugar Association and some other research organisations have forecast a global deficit of 2-4 million tonnes (mt) in 2016 due to crop damage in Brazil.

“So, this will give a chance to India to export a large quantity of sugar this year to which the government has fixed a cap of 3.2 mt. The quantity equivalent to export would reduce domestic availability and supply pressure thereupon. Since we have forecast sugar output in India to remain lower at 26 mt, exports are needed to reduce domestic supply pressure,” said Abinash Verma, director general, Indian Sugar Mills Association.

The sugar sector estimates 7.5 mt of carryover stocks from the last year. There would be a surplus production of 3 mt, which would result in 10.5 mt of overall supply for the current crushing season ending September 2016.

To reduce supply pressure, the Centre has announced Rs 4.5 per quintal of cane crushed production subsidy, which helped producers to contract 1.25 mt of white sugar for exports. Of this, 1 mt have moved out of factories.

The Centre recently held a meeting with state chief and corporation ministers briefing them about the lackadaisical performance of fulfilment of export quota by mills in Maharashtra, the largest producing state contributing 25 per cent of India’s sugar output.

Subsequently, the Maharashtra government held a meeting with the state’s sugar mills, wherein it was decided that the mills that export 12 per cent of the current season’s production would be entitled to exemption of state purchase tax on sugarcane.

In Maharashtra, sugar mills need to pay a purchase tax of three per cent on the fair and remunerative price, which works out to Rs 9 per quintal of sugarcane.

“Mills are waiting for the notification in this regard. The mills would be able to achieve 1.12 mt of export quantity cap allocated to them. Sugar mills in the state have contracted only 0.4 mt for sugar exports. On achieving the exports quantity target, supply pressure would ease in local markets,” said Verma.

Sugar mills have produced 19.95 mt of the sweetener so far this season, which stands almost similar to last year’s output till date.