Ind-Ra: Lifting of Stockholding Limits on Dealers to Ease Pressure on Sugar Prices

The removal of stockholding limits on sugar dealers will improve sugar demand at trader/dealer level and ease pressure on sugar prices, says India Ratings and Research (Ind-Ra). On 19 December 2017, the government lifted stockholding limits, imposed on dealers in sugar season SS 2016-17, owing to softening of sugar prices over the course of first two and a half months of SS 2017-18 and the government's expectation of a balanced demand-supply scenario and stable sugar prices in SS 2017-18.

The government had imposed stockholding limits at both miller and dealer levels to keep the sugar prices in check in SS 2016-17. While the stockholding limits on sugar millers was valid up to October 2017, the stockholding limits for dealers was extended up to end-December 2017.

While the arrival of new season's sugar was expected to result in a slight moderation in the sugar prices, the sluggish offtake on account of stockholding limits imposed on dealers played a major role in decline in average ex-mill prices to about INR34/kg in December 2017 from INR 36.5/kg at the beginning of the crushing season.

With the expectation of normal sugar production and crushing starting early in some of the major sugar producing states in SS 2017-18, the sugar production in the country increased about 30% to 6.94 million tonnes as of 15 December 2017 than the corresponding period of SS 2016-17.

Further, the possibility of sugar surplus in SS 2018-19 and prospects of sugar imports from Pakistan also played a role in the softening of sugar prices. In terms of expectations regarding sugar surplus for SS 2018-19, Ind-Ra believes it is too early to comment on production and it will be prudent to do so once the initial government estimates regarding the cane acreage are available.

The threat of subsidised sugar imports from Pakistan into India also remains a key monitorable. In November 2017, the federal government of Pakistan allowed sugar exports of 1.5 million tonnes with a subsidy support of PKR10.7/kg. Subsequently, the provincial Sindh government of Pakistan announced an additional export subsidy of PKR9.3/kg.

Ind-Ra believes high import duties of 50% and high cost of production for Pakistan-based millers just about shields the domestic sugar millers from imports. However, any adverse movement in prices resulting in sugar imports from Pakistan becoming cheaper than domestic prices will impact the Indian sugar millers.

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