Cyclone Yasi pushes global sugar prices to record highs. Global sugar prices have shot up to historic highs after Cyclone Yasi hit the Queensland coast in Australia. On February 2, white (refined) sugar prices for March 2011 delivery touched a record high of $845 per tonne. However, Indian sugar mills are unlikely to benefit from the surge in global prices due to the restrictions on exports, said Crisil Research in its report on Monday.
Crisil Research expects sugar production in Australia to drop to the lowest level seen in the last two decades after Cyclone Yasi hit the Queensland coast. Australia is among the top three sugar exporters in the world, accounting for around 10% of the global trade. The sugar industry is confined to Queensland and to some extent, Western Australia.The country produced about 4.7 million tonne of sugar in 2009-10, of which, an estimated 3.6 million tonne were exported.
Indian sugar mills unlikely to benefit from surge in global sugar prices. While global prices are rising, Indian sugar prices (Mumbai S-30 variety) have been relatively stable at Rs 28.5-Rs 30 per kg in the last 2 months on account of an expected marginal surplus in domestic sugar production coupled with restrictions on exports under the Open General Licence (OGL) scheme.
On February 2, 2011, domestic sugar prices (Mumbai S-30 variety) were at a 18-20% discount as compared to global white sugar prices. Although the government allowed exports of 5,00,000 tonne of sugar under the OGL scheme for SS 2010-11 in December 2010, it has not yet issued the release orders for the same and is unlikely to do so in the short term. So, Indian sugar producers are unlikely to benefit from the surge in global prices. Further, with the low differential between the global raw and white sugar prices, standalone refineries are not expected to gain, because of the global tightness, in the short term.
Profitability of mills to improve due to lower sugarcane costs. Given that there would be no upside to the domestic sugar prices from tightness in the global demand-supply situation, we maintain our forecast of domestic prices to average between Rs 29 and Rs 32 per kg during 2010-11. CRISIL Research believes that the profitability of the domestic sugar mills will increase in SS 2010-11 due to an expected decline in sugarcane procurement costs, but the extent of margin improvement would vary across regions.