Raw sugar imports unlikely to affect sugar prices negatively in the near term: ICRA

Credit rating agency ICRA on Wednesday said that the recent duty free raw sugar imports of 0.5 million MT till June 12, 2017 imposed by Central Government is unlikely to have any significant negative impact on the prices or profitability of sugar mills in the near-term.

However, should further import of duty free sugar be permitted, pressures on the stock position and the sugar prices cannot be ruled out in the forthcoming sugar year SY2017-18.

"Including the 0.5 million MT of imported sugar, the closing stock for the current season is estimated to be around 4.5 to 5.0 million MT, which would be sufficient to meet the requirement of around two months of domestic consumption. This is still lower than the normative stock level of 3 months (around 6 million MT) and also the previous year's closing stock level of 7.7 million MT," said senior vice president and Group Head ICRA Ratings, Sabyasachi Majumdar.

"While raw sugar imports are unlikely to negatively impact domestic sugar prices, this move may dampen prospects of a further price rise, first by increasing the sugar supply in the near term (which otherwise could have resulted in price rise in a tight market scenario) and second, by demonstrating the government intent to restrain price rise. This apart, pressures on stocks and prices from any further allowance of duty free import cannot be ruled out," added Majumdar.

Raw sugar imports will be allowed under a tariff rate quota and the Directorate General of Foreign Trade will issue a notice declaring the quota for each importer. The import will be done with zonal quantity restrictions and be open for only millers and refiners having own refining capacity.

"Currently, global raw sugar prices are around 16 cents/lb. At the current prices, the total conversion cost into refined sugar is likely to be at around Rs. 32,000/MT. Thus, the importers are likely to benefit around Rs. 4000 - 5000/MT while considering the current domestic sugar price at Rs. 36,000 to 37,000/MT. While the quantum of imports is low, it would be a positive for mills based in the West and the South, which are currently facing profitability pressures due to low cane availability," added Majumdar.