Sugar

Stocks of sugar companies in Tamil Nadu are taking a beating on the exchanges — they are close to hitting 52-week lows in the backdrop of an all-time poor performance anticipated in the coming season. Stock prices sliding as the 2016-17 sugar season comes to a close this month. Following an extended dry spell in Tamil Nadu, production has been steadily dropping in recent years and the coming 2017-18 (October to September) season could mark a historic low with capacity utilisation in the vicinity of about 25 per cent, on installed capacity. From a sugar production of 23.79 lakh tonnes in 2011-12, Tamil Nadu’s output has dropped to 10.45 lakh tonnes in 2016-17 and is estimated to hit a low of about 5.7 lakh tonnes in the coming season. This is just about four months’ consumption for the State. Mills elsewhere in UP, Maharashtra and Karnataka are set to benefit from the unfolding scenario.

State-owned Salt Trading Corporation (STC) has imported 25,000 tonnes of sugar from India in a bid to regulate market prices and ensure smooth supply during the upcoming festive season. The shipment amounts to half of the 50,000 tonnes of sugar that STC plans to import by November. The remaining amount will be imported in 10 consignments of 2,500 tonnes each. STC started importing sugar in a bid to end the private sector’s monopoly and make it available at reasonable prices and maintain adequate stocks to forestall possible shortages as output has dropped in both India and Nepal this year.

The government is likely to allow import of 300,000 tonnes of raw sugar at 25-30 per cent import duty. A notification on the matter is likely by Wednesday. Currently, sugar attracts an import duty of 50 per cent, making imports commercially unviable. The government is likely to soon take a decision on import of sugar to augment domestic supplies, as stocks are expected to fall to critically low levels. The imports then were also subject to zonal quantity restrictions. The government had allowed import of 300,000 tonnes duty-free raw sugar in the south zone via Tuticorin, Chennai, Mangaluru, and Kakinada ports, 150,000 tonnes in the west zone via Kandla and Mumbai ports and 50,000 tonnes in the east zone through Haldia and Paradeep ports. The government had later added Visakhapatnam and Gang avaram ports in Andhra Pradesh and Karaikal port in Puducherry to the list of ports where imports were allowed.

Prices of sugar fell in the key wholesale markets of Delhi and Muzaffarnagar due to fear of government allowing import of raw sugar to tide over any shortages. Sugar prices remained unavailable in Maharashtra because markets were shut for Ganpati Visarjan. The government is likely to allow import of 300,000 tonne of raw sugar at 25-30% import duty.

Prices of sugar fell in the key wholesale markets of Delhi and Kolhapur due to sluggish demand from bulk buyers. While demand is already poor, there is selling pressure on mills due to imposition of stock limit. So, they are quoting lower prices.

Global prices of raw sugar are likely to remain high in the long-term due to low availability of the sweetener. Raw sugar futures on the Intercontinental Exchange are now trading below the ethanol parity, directly reducing the availability of sugar. A fall in prices of sugar incentivises millers to shift to ethanol production. Mills in key cane-producing countries like Brazil have a choice between producing sugar or ethanol. The combined effect of sugar trading below the ethanol parity and increased probability of rainfall (in Brazil) would likely cause the sugar mix to swerve in favor of ethanol.

Futures contracts of sugar traded higher on the NCDEX because of likely rise in demand ahead of the festival season. Reports that mills might not advance the cane crushing this season (Oct-Sep) despite Centre’s request has also supported the sentiment. The most-active October contract traded up 1.4% from the previous close.

Import of Pakistan surplus sugar can help alleviate the prevailing supply crunch if the government allows more overseas purchases of the commodity. Even as the demand is set to rise due to upcoming festivals, India, especially the southern states that have seen sugar production dwindle due to drought conditions, has been hit by a supply crunch. Pakistan is likely to have a surplus of at least 300,000 tonne, which can be easily brought quickly into southern ports. Under the current circumstances, there is availability of 0.5 million tonne surplus sugar in Pakistan, which can come to south India.

The National Federation of Cooperative Sugar Factories Ltd has slammed the government efforts to rein in retail prices by imposing stockholding limits. Sugar industry is the only industry where stock limits are imposed on producers. These controls hurt the health and all-round development of the industry. There was no uniform policy on cane price as, unlike other states, the fair and remunerative price in Gujarat is paid in three installments, while Uttar Pradesh has its own mechanism of state advised price.

Indian Sugar Exim Corp plans to launch a national spot electronic platform for trading in sugar. The platform available to traders, millers, and whoever is interested in buying or selling sugar. Going forward, the platform may integrate with futures and the export-import market. The exchange should provide a transparent platform for spot price discovery.

The government is likely to soon take a decision on import of sugar to augment domestic supplies, as stocks are expected to fall to critically low levels. Government soon take a decision on the need to import sugar, Food Minister Ram Vilas Paswan posted on microblogging site Twitter. The government had taken an in-principle call to allow import of duty-free sugar, and modalities of import would be finalized soon. The government may be looking at another round of duty-free import also because it doesn’t want prices to rise ahead of the festival season.

The Indian sugar industry is set to witness yet another year of tight supplies despite a 20% rise in output expected in 2017-18 (Oct-Sep), as ending stocks are seen tumbling to multi-year lows. Sugar stocks at the end of October falling to around 1.5 million tonne.

The government has extended the deadline for export of raw sugar to the US under the tariff rate quota by a month to Oct 31. The US allows duty-free import of 8,424 tonne raw sugar from India under the quota every year. Sugar exports from India through the normal channel attract a duty of 20%. There have been no raw sugar exports so far under the preferential tariff quota for 2016-17 (Oct-Sep).

Prices of sugar were largely unchanged in the key wholesale markets of Delhi, Muzaffarnagar and Mumbai due to lacklustre trade. Sugar prices, however, fell in the key wholesale market of Kolhapur, as implementation of a stock-holding limit on mills dampened the sentiment.

India sugar production in 2017-18 (Oct-Sep) is set to fall short of even the most conservative of government estimates, of 23.5 million tonne, Kolhapur-based Warana Sugar Ltd told in the Sugar Conclave-2017 being held in the city. Warana estimate for sugar output is more than 6% below the lower end of the food ministry projection of 23.5-24.0 million tonne and 12% lower than the Indian Sugar Mills Association estimate of 25.1 million tonne.

The government may extend the stockholding limit on sugar traders for another six months in order to maintain adequate supplies in the market and to keep prices under control. Stockholding limit on traders have to be continued for another six months to prevent hoarding.

Sugar mills in Uttar Pradesh owed around 18.34 billion rupees to cane farmers as of Tuesday for the season that started Oct 1. So far in 2016-17 (Oct-Sep), mills have paid cane farmers 235.53 billion rupees, out of the total amount of 253.87 billion rupees owed this year. Mills across Uttar Pradesh also owed 3.28 billion rupees as interest on arrears to be paid to sugarcane farmers as of Tuesday. Sugar mills in Uttar Pradesh have collectively paid 99.9% of the total dues worth 206.46 billion rupees for 2014-15, while some private mills are yet to clear arrears of 270.30 million rupees for the year.