Sugar

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.

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.

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.

Prices of sugar continued to fall in the key wholesale markets of north India due to sluggish demand from bulk buyers. Most importantly, there is no demand. Also, production of sugar in Uttar Pradesh is expected to be higher next year. Sugar output in Uttar Pradesh is likely to rise to a record 10.3 million tonne in the next season starting October from 8.8 million tonne year ago. In the key wholesale markets of Maharashtra, sugar prices were largely unchanged amid lacklustre trade.

The government decision to allow import of 300,000 tonne of sugar at a concessional duty of 25% is unlikely to have any significant negative impact on prices of the sweetener in the near term, as the quantum of import permitted is very small. Including the 300,000 tonne of imported sugar, the closing stocks for current season are estimated to be around 4.7 million tonne, which would just be sufficient to meet the requirement of around two months of domestic consumption. The expected carryover stock for 2017-18 was lower than the normative stock level of three months–around 6 million tonne–and last year’s closing stock of 7.8 million tonne. The move to allow imports might also benefit the sugar mills based in west and south India, which are currently under profitability pressure due to low availability of cane.

Output of most kharif crops, barring cotton and sugarcane, is seen declining due to dry spell during Jul-Aug. In the Jun-Sep monsoon season so far, Karnataka has received 644.1 mm of rainfall, 10% below normal. Sugarcane production is seen up at 30.4 million tonne, compared with 23.5 million tonne last year.

Global prices have fallen over a quarter so far in 2017 to around $378 a tonne as output is expected to climb in key producers like India, China and Thailand. Sugar cane is a popular crop in the country as the government sets procurement prices, while the industry is protected by a 40 per cent import tariff which has led to high domestic prices. The country last had an export subsidy in 2015/16, set at 13,000 rupees ($124) per tonne for exports of 650,000 tonnes of the sweetener, and a similar subsidy level is needed again. The country produced 7 million tonnes of sugar in the 2016/17 marketing year ending September 30, exceeding local demand of around 5 million tonnes, and the association pegs this year’s crop at a record 8 million tonnes. Industry urges govt to allow export of 2m tons of sugar.

Mauritius cut its 2017 sugar production forecast by 2.7 percent, blaming above average rainfall for a poor harvest. It now expects sugar production of 350,000 tonnes this year, down from a previous forecast of 360,000 tonnes. Rainfall in the month of May was well above average representing 272 percent of the long-term average while the island received only 90 percent of the normal sunshine. Mauritius produced 386,277 tonnes of sugar in 2016. Sugar contributes about 1 percent of the Indian Ocean island’s $13 billion gross domestic product.

Up in arms against the failure of the state government to make payment of arrears to sugarcane growers and to accept the other demands of farmers, the Bharti Kisan Union — Lakhowal (BKU) has decided to hold indefinite gherao at the residence of Chief Minister Captain Amarinder Singh.

Prices of sugar were down in key wholesale markets across the country after the Centre allowed imports of the commodity. The Centre has allowed import of 300,000 tonnes raw sugar at a basic Customs duty of 25 per cent under the tariff rate quota for 60 days. The import of 300,000 tonnes sugar has been allowed through the ports of Tuticorin and Chennai in Tamil Nadu, Karaikal in Puducherry, Mangalore in Karnataka, and Kakinada, Visakhapatnam and Gangavaram in Andhra Pradesh. This season, average sugar prices in southern India have been ₹150-200 per 100 kg higher than those in the north due to this fall in output. Since the import has been allowed under the tariff rate quota, millers and refiners have to convert the imported raw sugar into refined or white sugar within 30 days from the date of bill of entry.

With the crop developing well, as a result of favourable recent rainfall and temperatures, the latest sugar production estimate for the coming season was in excess of 1.4m tonnes, and this would help to mitigate the impact on profit of lower prices. A reduction in stocks, together with the abolition of sugar quota and export restrictions from October this year, meant that the contracted area for 2017-18 had been increased by a third.

With domestic sugar prices in the wholesale market quoted at around Rs 39 a kg, imported sugar continues to remain cost-effective in southern states even with a 25 per cent duty. In Tamil Nadu, sugar is priced Rs 1.50-2 a kg more than that in Maharashtra due to supply shortage. The southern state faces huge supply deficit this year due to three-four years of subsequent drought resulting into lower local production. Worryingly, the drought continued this year too, which prompted policy makers to allow raw sugar import of 300,000 tonnes at 25 per cent of import duty against the prevailing duty of 50 per cent.