Sugar

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.

Prices of sugar fell in the key wholesale markets of north India as mills lowered their prices due to subdued demand and adequate stocks. Prices are sluggish as there is a fear in the market that the government may allow more imports. The government may consider importing more duty-free sugar and bringing back stock limits on sugar mills this season if prices continue to rise in the run-up to Diwali. 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. Traders have a bearish outlook for sugar prices in the near term.

The food ministry plan to sell subsidised sugar to the poorest-of-the-poor has run into financial hurdles. The finance ministry has turned down the food ministry request for additional allocation of 3.0 billion rupees for sugar subsidy due to paucity of funds. Under the scheme, the central government provides a subsidy of up to 18.50 rupees a kg to state governments for selling 1 kg of sugar at a fixed price of 13.50 rupees per kg through fair price shops to each of the 20.5 million families covered under the Ana Anna Yojana. The scheme was expected to cost the central exchequer 5.5 billion rupees annually.

Iran can achieve self-sufficiency in sugar production within the next four years provided domestic factories are equipped with up-to-date machinery. A record high of 1.65 million tons of sugar were produced in Iran in the last fiscal year (March 2016-17), which amount is unprecedented in the last 120 years. Iranians consume between 2.2 and 2.4 million tons of sugar a year and last year the import of more than 550,000 tons of the product was needed.

The company has announced a preferential issue of 500 million compulsorily convertible preference shares of 16.27 rupees each to Singapore-based Wilmar Sugar Holdings Pte Ltd. The Singapore-based company also make an additional investment of 7.84 billion rupees in the company, which be utilised to pay off part of the debt and provide working capital. Shree Renuka Sugars ended at 19.10 rupees, down 5.7%, on the National Stock Exchange.

The government has allowed export of 8,424 tonne raw sugar to the US, under the preferential trade quota for 2017-18 (Oct-Sep). The US allows a fixed quantum of duty-free raw sugar import from India every year, under the preferential tariff rate quota. Sugar imports into the US outside the quota attract high import levies. Exports of sugar subject to 20% export duty. The government had allowed export of raw sugar to the US under the tariff rate quota this year as well but there have been no exports so far under the mechanism as shipments are unviable after the 20% export duty.

India domestic consumption of sugar is likely to be nearly unchanged on year at around 24.5 million tonne in 2017-18 (Oct-Sep). The Indian Sugar Mills Association had estimated sugar consumption in 2016-17 at 23.8-24.0 million tonne. The ratings agency also pegged the sugar output in 2017-18 at 24.5 million tonne, up 20.7% on year. As a result, there are expectations of a tight sugar stock situation in the upcoming season. While this expected tight stock situation, along with the recent increase in the import duty on sugar from 40% to 50% is likely to support the domestic sugar prices in the near term, the increase in cane costs for the coming crushing season will impact margins.

Futures contracts of sugar traded down over 2% after reports said the government may consider more duty-free import of sugar. The government may also impose a stock limit again on mills, this season, if prices continue to rise. National Federation of Cooperative Sugar Factories asking sugar mills to advance cane crushing also weighed on the sentiment. The most-active December contract traded down 2.9% from the previous close.

Mills in Brazil Centre-South region produced 3.10 million tonne of sugar during the first fortnight of July, up 9.1% from 2.84 million tonne in the year-ago period. Of the total cane crushed, around 48% was used for sugar production, while the remaining was used to make ethanol. Mills in the region are likely to produce 35.2 million tonne of sugar this season, compared with 35.6 million tonne in 2016-17 (Apr-Mar).

The government may consider more duty-free sugar imports and bringing back stock limits on sugar mills this season if prices continue to rise in the run-up to Diwali. 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. Prices in both retail and wholesale markets are expected to rise again as sugar supplies are tight this season and demand is seen increasing ahead of the festival season. The government had last year made it mandatory for mills to offload sugar from their stocks during Sep-Oct to rein in prices. Mills were allowed to keep only 37% of their total stock at the end of September, and 24% by the end of October, forcing them to offload a higher quantum in the market.

Prices of sugar fell for the third straight day in the key wholesale markets of north India due to subdued demand at higher prices amid adequate stocks in the markets. Regular supplies have resumed in the markets now and prices have declined. Prices are subdued also because of reports of the government asking mills to curtail the prices.

Futures contracts of sugar hit their 3% lower circuit, taking cues from the spot markets where prices fell due to low demand at higher prices. The most active December contract was down 3% from the previous close.

The government has sought Parliament approval to spend 294.6 million rupees to clear pending claims of interest subvention under the Scheme for Extending Soft Loan to Sugar Mills, and to give production subsidy to mills. The approval for the additional amount was sought in the First Batch of Supplementary Demands for Grants tabled in Lok Sabha. Of the total amount, the government sought 63.6 million rupees to clear pending claims, and the remainder to provide production subsidy to sugar mills to offset the cost of cane and facilitate timely payment of sugarcane dues. The demand will not entail any cash outgo, as the funds will be provided from the sugar development fund.

Maharashtra has extended stock limit on sugar until October. The state government had imposed the stock limit on sugar in May 2016. The government continues to impose the stock limit on sugar due to concerns over supply shortage ahead of the festivals. Wholesalers and retailers in the state will not be allowed to hold more than 500 tonne and 50 tonne of sugar, respectively, for a period of one month after they receive the stocks. The government has also asked sugar mills to advance the crushing of the sugarcane to early- or mid-October to maintain adequate supply of sugar in the market.

Prices of sugar were down in the key wholesale markets of Delhi due to low demand at higher prices. Prices of the sweetener are subdued also because of reports of the government asking mills to curtail the prices. On the NCDEX, the October contract of sugar traded down 0.7% from the previous close.

Futures contracts of raw sugar settled 3.5% lower on the ICE because of expectations of higher global supplies in 2017-18, led by a rise in production in Brazil. Mills in Brazil Centre-South region produced 3.1 million tonne sugar during July 1-15, up 9.1% on year. Reports of early crushing in India due to likely higher production in 2017-18 (Oct-Sep) also weighed on prices. Early crushing would help availability of new stock of sugar in the market. The most-active October contract on ICE ended at 13.9 cents a pound, down 3.5% from the previous close.