Sugar mills seek govt help to dispose of supply surplus

DUBAI (Reuters) - Struggling sugar mills in India should benefit from a fixed-pricing mechanism for fuel ethanol but still need government support to export surplus sugar, the Director General of the Indian Sugar Mills Association said on Sunday.

Ethanol is produced in India from molasses, a byproduct of sugar production, and the government introduced the mechanism in December aiming to raise output to help curb fossil fuel imports.

"Fixed ethanol pricing is a positive development," Abinash Verma told the Kingsman Platts Dubai Sugar Conference.

Falling sugar prices in India linked to a supply glut have taken a heavy toll on sugar mills.

Last year one of India's largest sugar mills, Mawana Sugars Ltd , defaulted on 2.5 billion rupees ($40 million) in outstanding loans from a consortium of lenders, an official from the company said.

The surplus has depressed local prices, which could fall further unless the government provides incentives for raw sugar exports.

Verma said he expected the government to issue a decision on export subsidies this week.

"It is almost through so we expect and we pray it will happen this week," he told Reuters.

Subsidies helped Indian raw sugar exports last year and mills have been waiting for news of this year's subsidy since the start of the crushing season in October.

Verma said India's sugar production for the 2014-2015 season is expected at 26 million tonnes while consumption will be between 24.7 million tonnes and 24.8 million tonnes.

"From what we are hearing the government is proposing around 1.4 million tonnes of assistance for raw sugar. Without government support we would not be in a position to export so whatever government will announce that is the kind of upper ceiling of what we can export," Verma said.

Verma said government policies which impose high prices for the cane used to produce sugar had helped create the surplus and government assistance was therefore needed to get rid of it.

"There is a need for government support for the disposal of surplus sugar," he said.

India exported more than 1 million tonnes of raw sugar in 2014 and mills had hoped to export up to 2 million tonnes this year.

(Reporting by Maha El Dahan and Rania El Gamal; editing by Jason Neely)