Sugar

The government is likely to allow import of 300,000-500,000 tonne sugar at a concessional import duty of 25% to augment supply during the upcoming festival season. The proposal to this effect (allowing import at 25% import duty) might be put up to the Cabinet for approval later this week. Government was planning to tweak the conditions of advance licence scheme giving more time to sugar mills and refineries to fulfil the obligation of re-exports.

Prices of sugar fell in the key wholesale markets of north India as bulk demand faded at higher price levels. Sugar prices had risen over the last two days due to an increase in demand ahead of Raksha Bandhan and Janmashtmi. Buyers have already stocked enough supplies for festive season. Now that prices are high, there is depressed demand. In the key wholesale markets of Maharashtra, however, prices of the sweetener were stable amid lacklustre trade. Market players have a bearish outlook on sugar prices in the near term. The Centre may also consider giving millers and refiners more time to export refined sugar under the advance license scheme in a bid to ensure adequate supply in the domestic market.

Sugar mills in Tamil Nadu are keen on sourcing raw sugar from Uttar Pradesh and Maharashtra–the states that are expected to produce a surplus in 2017-18 (Oct-Sep) –in a bid to improve availability of the sweetener in the state. While the mills in surplus sugar-producing states are willing to produce and supply raw sugar to Tamil Nadu, high transportation costs would make it unviable. The mills have also urged the government to help cut their loss by restructuring their bank loans. Sugar production in Tamil Nadu in 2017-18 is likely to be even lower than the 2016-17 season because of successive years of meagre rainfall in the state, a drop-in cane acreage, and lower sugar recovery. Millers expect sugar output to fall to 600,000 tonne in 2017-18 from 1.05 million tonne in 2016-17.

Global food prices rose for a third consecutive month in July to hit the highest in 31 months, with hot and dry weather in North America and some other parts contributing to the situation. Average global food prices increased by 2.3 per cent in July against June, primarily driven by a sharp increase in the prices of rice, wheat, sugar, milk and cheese. FAO’s Food Price Index averaged 179.1 points in July, up by 3.9 points or 2.3 per cent from June. The latest rise put the Index nearly 16.6 points (10.2 per cent) above last year’s level and at its highest since January 2015.

The United States is planning to import more sugar from the Philippines after several exporters were not able to fill up their United States quota allocation this year, a development seen beneficial to the Philippines especially because local production is expected to improve this season. Philippines got additional sugar quota allocation of 63,830 metric tons (MT) from the US.

Spot prices of sugar rose in the key wholesale markets of Maharashtra due to higher demand. The expectations of a bullish trend are supporting prices in Maharashtra right now due to supply concerns. The carry forward stock is likely to be lower. Prices of the sweetener in north India, however, were down as demand fell at higher price levels. Prices rose yesterday amid festival demand. Now, there is no buying support at higher level. Overall, traders have a bearish outlook on sugar prices for the coming days. The government may consider more duty-free sugar imports and re-impose stock limits on sugar mills as well if prices continue to rise.

Tightening sugar market fundamentals and rising prices have generated renewed concerns within government circles over the risk of a further spike in the price of the essential food commodity during the upcoming festival season. This may have a bearing on credit policy in the context of inflation expectations. Worse, in a tightly balanced market, even a small change in either demand or supply or both, will exert a disproportionately larger impact on prices; and admittedly the domestic sugar market is tightly balanced this year. According to the government, consumption demand for sugar was 256 lakh tonnes in 2014-15, which declined to 248 lakh tonnes in 2015-16. In the event of a normal South-West monsoon and a decent Kharif harvest in September, rural incomes may rise and result in additional demand for all essential food commodities, including sugar. It would be expedient to plan for 2017-18 and address the immediate issue of sugar availability and prices in the next three months. Indeed, it would be commercially prudent and politically expedient to permit import of an additional 10 lakh tonnes, which can help contain the risk of a price spurt, augment supplies across the country and help have a modest carry-over into the new season. Administrative measures such as storage limits have only a limited impact. Laws of economics will eventually prevail.

Spot prices of sugar rose in the key wholesale markets of the country because of higher demand. Prices have also risen as mills in Maharashtra are withholding stocks. Demand is also higher as bulk and retail buyers usually replenish pipelines in the first few days of the month. The outlook on sugar prices is, however, bearish. The government may consider more duty-free sugar imports and bring back stock limits on sugar mills as well if prices continue to rise.

Futures contracts of sugar rose on NCDEX taking cues from the spot markets, where prices increased because of higherdemand ahead of Raksha Bandhan. The most-active October contract was up 0.4% from the previous close. The overall sentiment for sugar, however, is bearish due to concerns that the government may consider more duty-free sugar imports and re-impose stock limits on sugar mills this season if prices continue to rise.

Sugar output in Uttar Pradesh is seen rising over 13% to 10 million tonne in 2017-18 (Oct-Sep) from 8.79 million tonne in the current year that ends September. Output of sugar is expected to rise on the back of a rise in yield and higher recovery from cane. Acreage in the state, however, is not likely to vary a lot from last year. The rise in sugar output is not because of acreage, but due to expectations of increased yields.

Futures contracts of raw sugar on ICE rose to a two-month high of 15 cents a pound as Brazil may withdraw the recent hike in tax on ethanol, which would subsequently trigger demand for the bio-fuel. Brazil had last week increased taxes levied on gasoline by 0.41 Brazilian real per ltr and on ethanol by 0.2 Brazilian real. Millers in key cane-producing countries like Brazil have a choice between producing sugar and ethanol. The benchmark October raw sugar contract on ICE traded up 0.6% at 14.99 cents a pound.

Prices of sugar fell in the key wholesale markets of the country due to sluggish demand from bulk buyers. Prices are sluggish as there is a fear in the market that the government may allow more imports. The government is looking at the possibility of allowing duty-free imports barely weeks after it increased the import duty on sugar to 50% from 40%, as prices have started rising.

The food ministry expects sugar output in 2017-18 (Oct-Sep) at 23.5-24.0 million tonne, much below 25.1 million tonne projected by the Indian Sugar Mills Association. ISMA output projection of 25.1 million tonne is up 23.6% from the estimated 20.3 million tonne produced in 2016-17. Sugar output in Uttar Pradesh may rise to about 9.2-9.3 million tonne in 2017-18, up from 8.8 million tonne produced this year, while in Maharashtra, sugar production may rise to 7.3 million tonne, up from 4.2 million tonne produced in 2016-17.

The government may consider giving millers and refiners more time to export refined sugar under the advance license scheme in a bid to ensure adequate supplies in the domestic market if prices continue to rise in the run-up to Diwali. The government may raise time period from six months to 18 months or two years, depending on when the country has a sugar surplus. For the time being, the move would ensure enough supplies in the market. The advance licence scheme allows import of duty-free raw sugar, but on condition that the refined sugar produced from the imported sweetener will be exported within six months.

The Foreign Agriculture Service of the US Department of Agriculture has allowed export of 160,000 tonne speciality sugar to the US for 2017-18 (Oct-Sep) under the non-country specific tariff rate quota. This would allow export of speciality sugar from traders of all member countries of the World Trade Organisation. As there is stiff competition among suppliers, the quota of speciality sugar fills immediately. Therefore, Indian suppliers are advised to identify a US company with presence in the US who is supposed to apply to USDA for tariff free quota.