India's sugar stockpile to deplete by a quarter as exports rise

By Mayank Bhardwaj

NEW DELHI (Reuters) - India is likely to start the 2016/17 marketing year with 6.7 million tonnes of sugar, 26.4 percent lower than at the beginning of the current year, as rising exports will pull down inventories in the world's second biggest producer.

The higher Indian exports will put pressure on global prices, but harden the local market and help mills pay farmers at the support levels set by the state for sugar cane.

India started the 2015/16 year on Oct. 1 with 9.1 million tonnes of sugar stocks carried forward from the earlier year.

"We can certainly export 1.0 million to 1.2 million tonnes of white sugar ... We can also export up to 2 million tonnes of raw sugar," A Vellayan, president of the Indian Sugar Mills Association (ISMA), said on Wednesday.

The south Asian country, which competes with Brazil, Thailand and Pakistan in the world market, usually produces white sugar. It produces raw sugar only for exports, with its key buyers being Sri Lanka and countries in the Middle East and Africa.

In the current season mills have so far signed deals to export 600,000 tonnes of sugar, including 125,000 tonnes contracted by Indian Sugar Exim Corporation, a senior official with another trade body said.

Out of this nearly 300,000 tonnes sugar has already been dispatched and the remaining would be shipped out in the next two to three months, the official said.

India has been pushing domestic mills to sell sugar on the international market and use the proceeds to clear huge debts they owe farmers for sugarcane.

In September, India made it compulsory for sugar producers to ramp up exports to at least 4 million tonnes in the current crushing season as the country is set to produce a surplus for a sixth straight year.

In the last few years, debt-laden mills have been trying to generate revenue outside their core sugar business as the price of sweeteners dropped in the local market.

Sugar mills are expected to double the supply of ethanol to as much as 1.3 billion litres in 2015/16, Vellayan said.

Ethanol is a cleaner fuel option as far as carbon emissions are concerned compared with gasoline.

To give a boost to ethanol consumption, the government is considering allowing automakers to manufacture vehicles that can run entirely on ethanol, said Transport and Shipping Minister Nitin Gadkari, who attended a function organised by the ISMA.

(Writing by Rajendra Jadhav; Editing by Tom Hogue)