Ram Gopal Yadav

Mills in Brazil Centre-South region produced 2.97 million tonne of sugar during the second fortonneight of June, up 6% from 2.80 million tonne produced a year ago. Mills in the region, which accounts for over 90% of Brazil total sugar output, crushed 47.55 million tonne of cane during June 16-30, down 1.4% on year.

A steep decline in sugar and oil prices over the last six months has diminished the hope of financial recovery for a number of Brazilian mills, and could put new dealmaking in the sector on hold. Raw sugar prices in New York SBc1 were hovering around 13 cents per pound, down around 40 percent since the fourth quarter of 2016 to a level. At the same time, an ongoing slump in oil prices CLc1 LCOc1 has led state-controlled oil firm Petrobras (PETR4.SA) to repeatedly cut gasoline prices domestically. That has in turn pressured ethanol producers to follow suit since the two fuels were sold side by side at the pump. The price pressure on sugar and ethanol could cut short a nascent financial recovery for many Brazilian mills during a global sugar supply deficit in 2015 and 2016. It could also slow down talks between millers and potential investors and lead to more closures of indebted firms.

Prices of sugar in the domestic market are likely to rise in the near term as import duty on the commodity has been hiked. In the last week of June, prices of raw sugar on the Intercontinental Exchange had slipped to a 16-month low of 12.53 cents per pound. The country sugar production is estimated to have fallen to around 20.3 million tonne in 2016-17 (Oct-Sep), sharply down from 25.1 million tonne a year ago.

The Indian Sugar Mills Association has pegged the country sugar output in 2017-18 (Oct-Sep) at 25.1 million tonnes, up 23.6 per cent from 20.3 million tonnes produced in the previous year. The three-top sugar producing states Uttar Pradesh, Maharashtra and Karnataka are expected to produce over 19.8 million tonnes of total sugar output during the next season.

India sugar output in 2017-18 (Oct-Sep) is expected to rise 16-20% to around 23.5-24.5 million tonne. This growth driven largely by the increase in sugar production in Maharashtra and Uttar Pradesh.

Prices of sugar fell in key wholesale markets of Mumbai as mills reduced their prices to stoke demand. Likely higher output in 2017-18 (Oct-Sep), backed by good monsoon rains have been weighing on prices. In Mumbai, the sweetener sold down 5 rupees from previous close. In Delhi, however, prices rose as supplies were disrupted due to religious processions on some routes connecting western Uttar Pradesh to Delhi.