With domestic sugar prices showing a bullish trend, mills across the country are now hesitant to enter into forward contracts for exports, top sources from the industry said.
With domestic sugar prices showing a bullish trend, mills across the country are now hesitant to enter into forward contracts for exports, top sources from the industry said. In the current season, sugar mills across the country have so far signed contracts for some 6 lakh tonne of whites including 125,000 tonne of sugar contracted by the Indian Sugar Exim Corporation. However, with domestic prices showing an upward trend, mills are now waiting for international prices to improve, Mukesh Kuvedia, secretary-general of Bombay Sugar Merchants Association, said.
Sugar exports are likely to slow down in the coming month as a 12% jump in local prices in a fortnight has discouraged mills from signing new export deals, industry experts said. Of the 6 lakh tonne of sugar deals, nearly 3 lakh tonne have been dispatched. The remainder would be shipped out in next two-three months. India competes with Brazil, Thailand and Pakistan in the world market, usually producing white sugar. It produces raw sugar only for exports, with its key buyers being Sri Lanka and countries in the Middle East and Africa.
“In the last fortnight, there has been a rise of some R250 per quintal in the domestic market. Prices in the international market currently stand at $ 400-410 per tonne while domestic prices are ruling at Rs 2,700 per quintal. Mills are hesitant to enter into contracts because they expect the rally to continue in the domestic market. Moreover although the Centre has directed mills to export sugar, mills have time till September 2016 to fulfill their respective quotas,” Kuvedia explained. The Centre has been asking mills to sell sugar on the international market and use the proceeds to clear the huge debts they owe farmers for sugar cane. It has also given mills an ultimatum, saying they have to reach the target of 40 lakh tonne of exports by the end of September 2016. According to senior officials in the industry, contracts are being signed and sugar will mostly move out of Maharashtra, Tamil Nadu and Karnataka, with some quotas being offered by mills in the north, because of high transportation costs. “Moreover, the production is likely to go down to 260 lakh tonne this season as against 283 lakh tonne which was produced last year, and the 2016-17 sugar season is also expected to see a lower crop. This has impacted sentiment in the market and the trend has become bullish. The trend is expected to continue,” Kuvedia said.
Globally, the sugar market is forecast to be in a deficit situation in 2015-16. Bad weather has affected the crop in key growing countries such as Brazil and India. Sugar prices have risen substantially since mid-September. Domestic wholesale prices are up by 10%, while global raw sugar prices are up by 18.4% and those of white sugar by 15%.