Sugar

Prices of sugar rose in the key wholesale markets of north India as demand increased at lower price levels. Sugar prices have remained low for many days now, so, we witonneessed some rise in demand at lower prices. Prices of the commodity have been falling since the beginning of September on account of increased selling pressure on mills as the government imposed stock limits on them. Prices of the sweetener were, however, largely unchanged in the key wholesale markets of Maharashtra in a lacklustre trade.

Davangere Sugar Co Ltd has surrendered the quota allocated to it by the Directorate General of Foreign Trade for import of raw sugar. The company, which has a refining capacity of 500 tonne per day, had applied for 20,000 tonne raw sugar import. The Directorate General of Foreign Trade, however, allocated 6,190 tonne raw sugar to the company. Davangere (Sugar) had opted out of the quota on Sep 14, and licence has not been issued to it. If an applicant fails to bring in sugar after obtaining a licence, they would have to pay a penalty of 0.5% of the value of the unutilised quota.

With Tamil Nadu facing a shortfall in sugar production in 2017-18 (October-September), local markets are witnessing the arrival of stocks from Karnataka and Maharashtra. Mills in Tamil Nadu will process about 1.40-lakh tonnes of the imported raw sugar, Karnataka 1.10-lakh tonnes, Andhra Pradesh 34,000 tonnes, and Maharashtra 5,900 tonnes. Tamil Nadu mills have welcomed the move to import raw sugar, as it adds a bit to the capacity utilization and revenue in the coming season. The shortage of cane in Tamil Nadu, due to the extended dry spell in recent years, means mills will be working at less than 30 per cent of capacity. The imported raw sugar represents a small addition, about 12-15 days of processing capacity. Given the present pricing, with sugar selling at about 38 rs a kg, mills estimate they will be able to turn a profit of about ₹1-1.50 a kg on the processed raw sugar.

Prices of sugar fell in key wholesale markets of the country amid increased selling pressure on mills. Prices of medium-grade sugar were down by 5 rupees per 100 kg each in the markets of Delhi and Muzaffar nagar, while they were 10 rupees per 100 kg lower in Mumbai and Kolhapur. Millers quoted lower prices as there was no demand at current price levels and mills have to adhere to stock limits.

Sugarcane crop in South and Central Maharashtra, the key growing regions, has suffered extensive damage due to pest attacks, and yields could dip by 10-15 per cent in the twin regions, causing extensive loss to farmers. Crop damage is extensive because of the white grub pest, which attacks the roots of sugarcane. In South and Central Maharashtra, more than 16.85 per cent and 41.25 per cent area has been affected in 2016-17 due to the pest attack. An average 30 to 35 per cent area is affected, which could result in a 10 to 15 per cent loss in sugarcane yield. In Maharashtra, sugarcane has been planted in about 9.5-lakh hectares for the 2016-17 season, higher than the 6.33-lakh hectares in the previous year.

Pakistan has allowed export of 500,000 tonne of sugar due to surplus stock in the country. Pakistan is estimated to have produced around 6.2 million tonne sugar this season. The country’s consumption is roughly 5 million tonne, leaving a surplus of 1.2 million tonne. For the 2016-17 marketing year ending September, the country has allowed export of 725,000 tonne of sugar till July, though exports have been below the allocated quota due to low prices globally.

After two years of deficit, the global sugar market is likely to post a surplus in 2017-18 (Oct-Sep). The surplus expected had dragged front-month raw sugar contract on Intercontinental Exchange to a 16-month low of 12.53 cents a pound in June. Though prices have since recovered to over 14 cents, they are likely to trade in a narrow range of 12.55-18.20 cents a pound over the next few months. Sugar prices are likely to remain in a range as the global sugar production is seen at a record high this year. International Sugar Organization has pegged global 2017-18 sugar output at a record high of 179.30 million tonne, up 11.5 million tonne from this year, driven largely by production increases in India, Thailand, China and EU. Sugar output in Brazil, the world’s largest sugar producer and exporter, is expected to be only marginally higher at 36.2 million tonne, while that in European Union it may rise to 18.64 million tonne, much higher compared to 15.9 million tonne produced in 2016-17.

Shree Renuka Sugars Ltd has been allowed to import 60,658 tonne or 20.2% of raw sugar under the quota to import at a concessional rate by the Directorate General of Foreign Trade. EID Parry India Ltd has been allocated 46,556 tonne or 15.5% of the total quota. The government took into account monthly refining capacity of mills, quantity applied, and the number of applications while considering the applications for raw sugar import.

Prices of sugar continued to fall in the key wholesale markets of north India on account of sluggish demand from bulk buyers. Demand for the sweetener has been poor since the beginning of September. There is no demand at all. Production in Uttar Pradesh is also seen higher, so no one can stop prices from falling further. In the key wholesale markets of Maharashtra, however, prices remained largely unchanged due to lacklustre trade. Traders have a bearish view on sugar prices for the short as well as the long term.

October raw sugar settled down 0.06 cent, or 0.4 percent, at 14.27 cents per lb. Some commercial longs are rolling their positions into the March contract. There probably some March and May price fixing going on, too. The premium for white over raw sugar – a measure of the profitability of refining – has recovered only slightly after falling to its weakest in 2-1/2 years this week in the run-up to an expected large harvest in the EU. ICE October white sugar was up $5.70, or 1.5 percent, at $374.70 a tonne.

The Maharashtra government may look to revive at least 40 non-functional cooperative sugar mills in the state possibly by acquiring and leasing them out. Government has formed a committee under the chairmanship of State Sugar Commissioner Sambhaji Kadu-Patil to conduct a financial and technical evaluation of the assets of these shuttered sugar factories. The committee has been asked to submit its report before Sep 20. Maharashtra has 175 cooperative sugar factories, out of which 93 are functional, 33 has been already acquired under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and six have been sold by government.

Mills in Brazil Centre-South region produced 2.54 million tonne of sugar in the second fortonneight of August, down 0.5% compared with 2.55 million tonne produced in the year-ago period. Centre-South Brazil accounts for over 90% of the country’s total sugar output. Mills in the region crushed 38.91 million tonne of cane during Aug 16-31, up 0.8% on year. In Apr-Aug, mills crushed 381.52 million tonne of cane, down 3.6% on year. During the same period, mills produced 23.26 million tonne sugar, up 3.4% on year. Mills in the Centre-South region also produced 15.29 bln ltr of ethanol during the period compared with 16.54 bln ltr in the year-ago period. Of the total cane crushed, around 48.5% was used for sugar production, while 51.5% was used to make ethanol.

Futures contracts of raw sugar on ICE rose due to lower output of the sweetener in Brazil. The most-active October contract was up 0.8% at 14.13 cents per pound.

The government is set to import 50,000 metric tons of sugar, in order to control the market and meet shortages in the country. The sugar imported through London based firm ED&F Man Sugar Limited at a rate of $470 with per ton, resulting in a total cost of Tk 211.32 crore. The retail price of sugar has now dropped to Tk56 per kg from Tk60 one month ago, while packed sugar is selling at Tk65 per kg as compared to Tk69 a month earlier. The annual demand for sugar in Bangladesh is at 1.5 million tons. About 7-8% of this is produced by 15 state-run sugar mills, while the rest is imported from the private sector.

Sluggish demand from bulk buyers weighed on prices of sugar in the key wholesale markets of the country. Prices of medium-grade sugar fell 10 rupees per 100 kg each in Delhi and Muzaffarnagar, and were down 5 rupees each in Mumbai and Kolhapur. Trade is subdued as demand is extremely poor. Buyers are making need-based purchases only, probably in anticipation of a further fall in prices.

The response to the government allowing more import of raw sugar has been robust, with millers having sought to import three to four times the allowed quota. Like last time, govt have received a lot of applications. The quantity applied for is almost three-to-four times the approved quantity of 300,000 tonne. Shree Renuka Sugars and EID Parry have applied for the maximum quantity.