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Global price spike revives demand for sugar exports

Sanjay Jog  |  Mumbai 

Prices see a sharp rise due to cyclone in Australia.

Sugar prices in the global market scaled a new high on Thursday at $851.5 per tonne in London trading, a 10 per cent high in the past 10 days trading sessions, though it moderated later in the day.

The surge was largely due to fear of a heavy fall in Australia’s sugar production due to the Yasi cyclone crossing into northern Queensland, a region accounting for a third of the country’s cane output. There have been adverse climatic conditions in other producing countries such as Brazil, Thailand and China and prices in recent weeks have been at a 30-year high.

Although the rise in global sugar prices is not expected to have any direct impact on the Indian industry, it has created hopes for more export opportunities. India has a surplus in sugar, while prices are remunerative enough to allow exports and help mills improve margins, which are presently thin.

Anticipating export permission, sugar companies’ share prices went up sharply on Thursday. Leading companies’ shares were up by three to nine per cent on Thursday, when the broader market was up a little less than two per cent.

The industry has made a fresh appeal to immediately get going to resolve the procedural blocks to commencing 500,000 tonnes of exports under Open General Licence. The central government had a plan to allow export of 1.5 million tonnes, in three installments of 500,000 tonnes each under OGL in January, February and March. It allotted mill-wise export quotas and they were advised to finalise the contracts and apply for release orders.

However, say sources at the Indian Sugar Mills Association (Isma) and the National Federation of Cooperative Sugar Factories, representative organisations of private and cooperative mills, respectively, told Business Standard, “The process is halted and we are not aware why. As a result, India has so far lost the opportunity of earning foreign exchange and thereby help the ailing industry to improve their realisation and pass the benefits to farmers.”

The two bodies note India is the only country expected to have surplus production. Initial estimates were of 25 mt of production, now revised to 24.5 mt. There is also a carryforward stock of 4.5 mt, while domestic consumption is expected at 22 mt.

Maharashtra govt plea  The Maharashtra government has swung into action and written to the Union finance minister, commerce minister, agriculture minister and minister of state for food, with a plea to immediately permit the first instalment of 500,000 tonnes of exports and allow another million tonnes in February itself.

Prakash Naiknavare, managing director of the Federation of Cooperative Sugar Factories in Maharashtra, said: “If the fresh efforts meet success, millers can at least cover their production cost of Rs 2,700 a quintal and keep the came price commitment to farmers.” The present ex-mill price is Rs 2,620 per qtl.

Manik Borkar, managing director of Anuraj Sugar Mill, a Pune-based private mill, argued the Centre should consider allowing OGL exports of five million tonnes. This would benefit the industry a lot in the current scenario.

Yogesh Pande, founder president of the Maharashtra Sugar Traders & Brokers Association, said: “There is still panic among traders and millers. There is a problem of surplus, a huge quantity of sugar with no takers. The industry is eagerly waiting for OGL export permits to be cleared by the central government.”

Angel Commodities in a recent report said Indian sugar prices were not expected to decline much, as the possible opening of exports under OGL may support the prices.

“If revised production estimates are above 25 mt, then the government may allow more sugar exports under OGL to the extent of 1-1.5 mt. In the medium term, prices are expected to remain bullish due to opening up of exports in the domestic market, amidst supply tightness across the globe,” the report added.

First Published: Fri, February 04 2011. 00:48 IST
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