Sugar

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.

Futures contracts of sugar rose on NCDEX taking cues from the spot markets, where prices increased because of higherdemand ahead of Raksha Bandhan. The most-active October contract was up 0.4% from the previous close. The overall sentiment for sugar, however, is bearish due to concerns that the government may consider more duty-free sugar imports and re-impose stock limits on sugar mills this season if prices continue to rise.

Sugar output in Uttar Pradesh is seen rising over 13% to 10 million tonne in 2017-18 (Oct-Sep) from 8.79 million tonne in the current year that ends September. Output of sugar is expected to rise on the back of a rise in yield and higher recovery from cane. Acreage in the state, however, is not likely to vary a lot from last year. The rise in sugar output is not because of acreage, but due to expectations of increased yields.

Futures contracts of raw sugar on ICE rose to a two-month high of 15 cents a pound as Brazil may withdraw the recent hike in tax on ethanol, which would subsequently trigger demand for the bio-fuel. Brazil had last week increased taxes levied on gasoline by 0.41 Brazilian real per ltr and on ethanol by 0.2 Brazilian real. Millers in key cane-producing countries like Brazil have a choice between producing sugar and ethanol. The benchmark October raw sugar contract on ICE traded up 0.6% at 14.99 cents a pound.

Prices of sugar fell in the key wholesale markets of the country due to sluggish demand from bulk buyers. Prices are sluggish as there is a fear in the market that the government may allow more imports. The government is looking at the possibility of allowing duty-free imports barely weeks after it increased the import duty on sugar to 50% from 40%, as prices have started rising.

The food ministry expects sugar output in 2017-18 (Oct-Sep) at 23.5-24.0 million tonne, much below 25.1 million tonne projected by the Indian Sugar Mills Association. ISMA output projection of 25.1 million tonne is up 23.6% from the estimated 20.3 million tonne produced in 2016-17. Sugar output in Uttar Pradesh may rise to about 9.2-9.3 million tonne in 2017-18, up from 8.8 million tonne produced this year, while in Maharashtra, sugar production may rise to 7.3 million tonne, up from 4.2 million tonne produced in 2016-17.

The government may consider giving millers and refiners more time to export refined sugar under the advance license scheme in a bid to ensure adequate supplies in the domestic market if prices continue to rise in the run-up to Diwali. The government may raise time period from six months to 18 months or two years, depending on when the country has a sugar surplus. For the time being, the move would ensure enough supplies in the market. The advance licence scheme allows import of duty-free raw sugar, but on condition that the refined sugar produced from the imported sweetener will be exported within six months.

The Foreign Agriculture Service of the US Department of Agriculture has allowed export of 160,000 tonne speciality sugar to the US for 2017-18 (Oct-Sep) under the non-country specific tariff rate quota. This would allow export of speciality sugar from traders of all member countries of the World Trade Organisation. As there is stiff competition among suppliers, the quota of speciality sugar fills immediately. Therefore, Indian suppliers are advised to identify a US company with presence in the US who is supposed to apply to USDA for tariff free quota.

The food ministry plan to sell subsidised sugar to the poorest-of-the-poor has run into financial hurdles. The finance ministry has turned down the food ministry request for additional allocation of 3.0 billion rupees for sugar subsidy due to paucity of funds. Under the scheme, the central government provides a subsidy of up to 18.50 rupees a kg to state governments for selling 1 kg of sugar at a fixed price of 13.50 rupees per kg through fair price shops to each of the 20.5 million families covered under the Ana Anna Yojana. The scheme was expected to cost the central exchequer 5.5 billion rupees annually.

Iran can achieve self-sufficiency in sugar production within the next four years provided domestic factories are equipped with up-to-date machinery. A record high of 1.65 million tons of sugar were produced in Iran in the last fiscal year (March 2016-17), which amount is unprecedented in the last 120 years. Iranians consume between 2.2 and 2.4 million tons of sugar a year and last year the import of more than 550,000 tons of the product was needed.

Prices of sugar fell in the key wholesale markets of north India as mills lowered their prices due to subdued demand and adequate stocks. Prices are sluggish as there is a fear in the market that the government may allow more imports. The government may consider importing more duty-free sugar and bringing back stock limits on sugar mills this season if prices continue to rise in the run-up to Diwali. The government is looking at the possibility of allowing duty-free imports barely weeks after it increased the import duty on sugar to 50% from 40%, as prices have started rising. Traders have a bearish outlook for sugar prices in the near term.

The company has announced a preferential issue of 500 million compulsorily convertible preference shares of 16.27 rupees each to Singapore-based Wilmar Sugar Holdings Pte Ltd. The Singapore-based company also make an additional investment of 7.84 billion rupees in the company, which be utilised to pay off part of the debt and provide working capital. Shree Renuka Sugars ended at 19.10 rupees, down 5.7%, on the National Stock Exchange.

The government has allowed export of 8,424 tonne raw sugar to the US, under the preferential trade quota for 2017-18 (Oct-Sep). The US allows a fixed quantum of duty-free raw sugar import from India every year, under the preferential tariff rate quota. Sugar imports into the US outside the quota attract high import levies. Exports of sugar subject to 20% export duty. The government had allowed export of raw sugar to the US under the tariff rate quota this year as well but there have been no exports so far under the mechanism as shipments are unviable after the 20% export duty.

India domestic consumption of sugar is likely to be nearly unchanged on year at around 24.5 million tonne in 2017-18 (Oct-Sep). The Indian Sugar Mills Association had estimated sugar consumption in 2016-17 at 23.8-24.0 million tonne. The ratings agency also pegged the sugar output in 2017-18 at 24.5 million tonne, up 20.7% on year. As a result, there are expectations of a tight sugar stock situation in the upcoming season. While this expected tight stock situation, along with the recent increase in the import duty on sugar from 40% to 50% is likely to support the domestic sugar prices in the near term, the increase in cane costs for the coming crushing season will impact margins.

Futures contracts of sugar traded down over 2% after reports said the government may consider more duty-free import of sugar. The government may also impose a stock limit again on mills, this season, if prices continue to rise. National Federation of Cooperative Sugar Factories asking sugar mills to advance cane crushing also weighed on the sentiment. The most-active December contract traded down 2.9% from the previous close.

Mills in Brazil Centre-South region produced 3.10 million tonne of sugar during the first fortnight of July, up 9.1% from 2.84 million tonne in the year-ago period. Of the total cane crushed, around 48% was used for sugar production, while the remaining was used to make ethanol. Mills in the region are likely to produce 35.2 million tonne of sugar this season, compared with 35.6 million tonne in 2016-17 (Apr-Mar).

Prices of sugar fell for the third straight day in the key wholesale markets of north India due to subdued demand at higher prices amid adequate stocks in the markets. Regular supplies have resumed in the markets now and prices have declined. Prices are subdued also because of reports of the government asking mills to curtail the prices.