Sugar

There are sufficient sugar stocks in India to take the country through the next sugar marketing year. This came amid reports that the government is contemplating another round of sugar imports to meet the anticipated high demand during the upcoming festival season. Sugar production fell below consumption in the 2016-17 marketing year. This had led to a surge in sugar prices, forcing the government to direct mills to maintain demand-supply balance and curtail the prices. The current prices are not higher than the previous year. The union government, which had increased the import duty on sugar to 50 per cent in July, is reportedly contemplating cutting it to 25 per cent and allowing import of sugar to augment supplies during the festival season.

Pakistan is expected to import a record 1.6 million tonne soybean in 2016-17 and around 2 million tonne in 2017-18. Higher demand for soybean from Pakistan is seen coming from poultry feed sector in the country. The country soy oil import is expected to be around 200,000 tonne in 2016-17 compared with 184,000 tonne in 2015-16. For Soy oil 2017-18, import is pegged at 250,000 tonne. Pakistan palm oil import is pegged at 3.0 million tonne in 2016-17 against 2.7 million tonne in 2015-16, while palm oil import is seen at 3.1 million tonne in 2017-18. Pakistan is one of the largest edible oil importers in the world.

Prices of sugar have risen recently due to the regional imbalance in availability of the sweetener. However, taking the sugar production of 2016-17 (Oct-Sep) and the carryover stock of 7.7 million tonne into account, there is sufficient availability of the commodity to meet the domestic demand. Mills across the country are estimated to have produced about 20.3 million tonne sugar in 2016-17, sharply down from 25.1 million tonne produced in 2015-16. Wholesale sugar prices in Delhi had shot up to a record high of 41 rupees a kg in July as stockists rushed to build inventory, which they had liquidated ahead of the rollout of goods and service tax. Though wholesale prices have eased since then to about 39.50 rupees, retail prices continue to hover at 43-45 rupees. Prices are expected to rise again as supplies are seen tight this season and demand is seen increasing ahead of the festival season.

India is planning to allow additional 200,000 tonnes of duty-free sugar imports, a government source said on Tuesday, as production fell below consumption in 2016/17 marketing year ending on Sept. 30, according to Reuters. The world’s biggest sugar consumer had earlier allowed duty-free imports of 500,000 tonnes of the sweetener. The country’s opening sugar stock for 2017/18 season starting from Oct. 1 are likely to be 4 million tonnes, down sharply from 7.7 million tonnes this year, the source, who declined to be named, said. Separately, India is planning to raise import tax on vegetable oils like palm oil, soyoil and sunflower oil, the source added.

The government of Jharkhand has floated a tender to buy 2,700 tonne white crystal sugar via NCDEX e-Markets Ltd, the spot arm of National Commodity and Derivatives Exchange. The Department of Food, Public Distribution and Consumer Affairs of Jharkhand seeks to buy ISS Grade S-30 sugar on Aug 17.

The government is likely to allow import of 300,000-500,000 tonne sugar at a concessional import duty of 25% to augment supply during the upcoming festival season. The proposal to this effect (allowing import at 25% import duty) might be put up to the Cabinet for approval later this week. Government was planning to tweak the conditions of advance licence scheme giving more time to sugar mills and refineries to fulfil the obligation of re-exports.

Prices of sugar remained largely flat across markets barring north India, where prices inched up due to improved demand from north-eastern states. Most of the demand is coming from north-eastern states as markets in the western region were largely shut due to Raksha Bandhan festival and Lunar eclipse, which is considered inauspicious among traders. Government warning of re-imposing stock limits if prices rise further seems to have kept traders cautious and away from aggressive trade.

Tamil Nadu sugar mills want 600,000 tonnes from mills in Uttar Pradesh for supply in the coming season but want central government help on the transport cost. Sugar output in Tamil Nadu has been declining for some years. With the deficient rain this season for the fourth year in a row, mills in Tamil Nadu are estimating only 550,000 or 650,000 tonnes of output for 2017-18, as against 2.4 million tonnes in 2011-12. In sugar season 2016-17, the state reported output at 1.05 MT, almost equivalent to its annual consumption. The UP mills agreed, but were uncomfortable with the transportation cost of Rs 3-3.5 a kg. Mills in Tamil Nadu cannot take this burden; it would inflate prices in the state. Therefore, seek involvement of Isma.

Prices of sugar fell in the key wholesale markets of north India as bulk demand faded at higher price levels. Sugar prices had risen over the last two days due to an increase in demand ahead of Raksha Bandhan and Janmashtmi. Buyers have already stocked enough supplies for festive season. Now that prices are high, there is depressed demand. In the key wholesale markets of Maharashtra, however, prices of the sweetener were stable amid lacklustre trade. Market players have a bearish outlook on sugar prices in the near term. The Centre may also consider giving millers and refiners more time to export refined sugar under the advance license scheme in a bid to ensure adequate supply in the domestic market.

Sugar mills in Tamil Nadu are keen on sourcing raw sugar from Uttar Pradesh and Maharashtra–the states that are expected to produce a surplus in 2017-18 (Oct-Sep) –in a bid to improve availability of the sweetener in the state. While the mills in surplus sugar-producing states are willing to produce and supply raw sugar to Tamil Nadu, high transportation costs would make it unviable. The mills have also urged the government to help cut their loss by restructuring their bank loans. Sugar production in Tamil Nadu in 2017-18 is likely to be even lower than the 2016-17 season because of successive years of meagre rainfall in the state, a drop-in cane acreage, and lower sugar recovery. Millers expect sugar output to fall to 600,000 tonne in 2017-18 from 1.05 million tonne in 2016-17.

Global food prices rose for a third consecutive month in July to hit the highest in 31 months, with hot and dry weather in North America and some other parts contributing to the situation. Average global food prices increased by 2.3 per cent in July against June, primarily driven by a sharp increase in the prices of rice, wheat, sugar, milk and cheese. FAO’s Food Price Index averaged 179.1 points in July, up by 3.9 points or 2.3 per cent from June. The latest rise put the Index nearly 16.6 points (10.2 per cent) above last year’s level and at its highest since January 2015.

The United States is planning to import more sugar from the Philippines after several exporters were not able to fill up their United States quota allocation this year, a development seen beneficial to the Philippines especially because local production is expected to improve this season. Philippines got additional sugar quota allocation of 63,830 metric tons (MT) from the US.

Spot prices of sugar rose in the key wholesale markets of Maharashtra due to higher demand. The expectations of a bullish trend are supporting prices in Maharashtra right now due to supply concerns. The carry forward stock is likely to be lower. Prices of the sweetener in north India, however, were down as demand fell at higher price levels. Prices rose yesterday amid festival demand. Now, there is no buying support at higher level. Overall, traders have a bearish outlook on sugar prices for the coming days. The government may consider more duty-free sugar imports and re-impose stock limits on sugar mills as well if prices continue to rise.

Tightening sugar market fundamentals and rising prices have generated renewed concerns within government circles over the risk of a further spike in the price of the essential food commodity during the upcoming festival season. This may have a bearing on credit policy in the context of inflation expectations. Worse, in a tightly balanced market, even a small change in either demand or supply or both, will exert a disproportionately larger impact on prices; and admittedly the domestic sugar market is tightly balanced this year. According to the government, consumption demand for sugar was 256 lakh tonnes in 2014-15, which declined to 248 lakh tonnes in 2015-16. In the event of a normal South-West monsoon and a decent Kharif harvest in September, rural incomes may rise and result in additional demand for all essential food commodities, including sugar. It would be expedient to plan for 2017-18 and address the immediate issue of sugar availability and prices in the next three months. Indeed, it would be commercially prudent and politically expedient to permit import of an additional 10 lakh tonnes, which can help contain the risk of a price spurt, augment supplies across the country and help have a modest carry-over into the new season. Administrative measures such as storage limits have only a limited impact. Laws of economics will eventually prevail.

Spot prices of sugar rose in the key wholesale markets of the country because of higher demand. Prices have also risen as mills in Maharashtra are withholding stocks. Demand is also higher as bulk and retail buyers usually replenish pipelines in the first few days of the month. The outlook on sugar prices is, however, bearish. The government may consider more duty-free sugar imports and bring back stock limits on sugar mills as well if prices continue to rise.