Too much sugar in India means mills banking on export subsidies

The sugar harvest in India, the world's biggest producer after Brazil, is forecast to climb to the highest level since 2012, increasing pressure on the government to subsidise exports and trim stockpiles.

Production may rise to 26 million tonnes (mt) in the year that began on October 1, according to the median of estimates from nine traders, producers and analysts compiled by Bloomberg. That would be the highest since 2011-2012 and more than the 25 million to 25.5 mt forecast by the Indian Sugar Mills Association on December 18. Output jumped 19 per cent to 10.3 mt by January 15 from a year earlier, association data show.

A bigger harvest will boost India's 7.5 mt stockpiles and hurt prices that capped a fourth year of losses in 2014, the longest run since 1962. While subsidised shipments will help mills that are forced to buy cane at prices set by the government, they will suppress world prices further as India exports threaten to exacerbate a global glut, according to Green Pool Commodity Specialists Pty, a researcher.

"The global market is simply too low to consider exports of raws from India without subsidy," Tom McNeill, a director at Brisbane, Australia-based Green Pool, said in an email. "The market will be pressured if India decides to put a subsidy."

Futures have rebounded 9.6 per cent this year to 15.92 cents a pound on ICE Futures US, after sliding 12 per cent in 2014. They were as high as 36.08 cents in February 2011. The International Sugar Organization estimates there is a global surplus of 473,000 tons in the year starting October 1.

Mills may export 1.5 mt of raw sugar this season with a subsidy of Rs 4,000 ($65) a ton, the survey shows. Shipments have stopped in October after the government suspended incentives for foreign sales. Spot prices of refined sugar were at Rs 27,450 a tonne as of January 21, according to the National Commodity & Derivatives Exchange in Mumbai.

Mills can't plan raw sugar production without a decision on the subsidies, the association said. The government is working on a subsidy proposal, Food Minister Ram Vilas Paswan said January 21 in New Delhi, without giving details.

India needs to ship 1.5 mt to 2 mt with incentives to help producers pay farmers on time and repay loans to the banks, the association said on January 16.

Bajaj Hindusthan Ltd, India's biggest producer, made six straight quarterly losses through September 30 while Balrampur Chini Mills Ltd, the second-largest, failed to make profit in five of the last six. Shree Renuka Sugars Ltd, the biggest refiner, also reported six straight losses through September 30, data compiled by Bloomberg show.