Sugar mills speed up export contracts as global prices rise

Mills say loss in 15% of volume export to compensate a marginal rise in domestic market, some still apprehensive though

A sudden increase in the prices of sugar in global markets has made exports somewhat viable and mills are expediting contracts for delivery in the October 2015-September 2016 crushing season. Indian mills aim to export the full four million tonnes of sugar announced by the government for this crushing season, with or without subsidy.

The mills have finalised contracts for over 100,000 tonnes before the season begins.

Signed bilaterally and also through the recently incorporated Indian Sugar Exim Corporation, a company set up by the Indian Sugar Mills Association (ISMA) and co-operative mills, most orders are from Asian countries and West Asia.

“We are going to finalise 100,000 tonnes of export orders very soon,” said Abinash Verma, director-general, ISMA.

At the current price of Rs 29,000 a tonne for the M30 variety, the industry is incurring a loss of Rs 1/kg, which sugar mills have agreed to absorb because of their experience from the last season. Between the government’s announcements of exports and the subsidy, the price of sugar crashed by Rs 9,000 a tonne last year. Since prices have firmed up in the last few days, sugar mills want to take advantage by signing contracts for the maximum quantity.

“Assuming we achieve the export ceiling of 4 million tonnes, it will comprise merely 15 per cent of India’s estimated production of 27 million tonnes. If the price of sugar rises by 1-1.50 a kg in the domestic market, we will be able to compensate for the loss in exports from the remaining 85 per cent of the output,” Verma said.

In the benchmark London market, the price of sugar has jumped to $390 a tonne, a rise of 17.12 per cent from the bottom of $333 a tonne on August 20.  In tandem, sugar M in Mumbai’s Vashi market jumped 15.35 per cent to Rs 29,080 a tonne today from Rs 25,210 nearly two months ago.

The reason for the rise in international sugar prices is the deficit forecast for the 2015-16 crushing season. Leading global research firms like Kinsman have forecast a global sugar deficit of 3.2 million tonnes in the current season against a 3.4 million tonne surplus last year. With a downward revision in India’s estimated sugar output to 27 million tonnes for 2015-16, a 2 per cent decline from the previous year, production is likely to surpass consumption by 3.5 million tonnes.