“Imported raw sugar is coming partly for local consumption and partly for re-export,” Rahil Shaikh, managing director of ED&F Man Commodities India, told Reuters in an interview on Thursday. Global raw sugar futures surged to a 30-year peak when India had to import sugar after its worst drought in nearly four decades during the year ending September 30, 2010.
Some mills, such as the country’s biggest refiner Shree Renuka Sugars, have been importing raw sugar to export as refined whites and are also selling refined sugar at home. The world’s second biggest sugar producer after Brazil is likely to import 1.4 million tonnes and nearly 1.135 million tonnes has already been landed, Shaikh said.
India is likely to produce 25 million tonnes of sugar in the year to September 2013, against annual consumption of around 23 million. “Local prices have hit the bottom. We can see upside from the current level,” said Shaikh, adding that exports from India in the short term were unlikely to happen and perhaps not even in 2013/14, as drought cuts its production.
In Kolhapur, a major market in India’s key sugar-producing western state of Maharashtra, the spot price for white sugar was $550 per tonne, while white sugar futures in London were trading around $509 per tonne. India’s sugar output in the year to September 2014 is likely to fall to 23.5 million tonnes, down 6 percent from the current year, hit by drought in key producing states such as Maharashtra and Karnataka, he said.
“There would be a marginal drop in the production due to drought, but supplies would be ample, due to carry forward stocks,” he said. India’s agricultural output depends heavily on the monsoon rains that sweep the country from June to September. Last year rainfall was lower than normal in key cane growing areas.
To avoid cycles of oversupply and shortage, India has been exploring options to free up the sector from various controls. New Delhi, keen to keep prices in check in the nation of more than 1.2 billion people, now sets the price mills must pay to farmers and buys 10 percent of their output, called levy sugar, at a big discount, for its welfare schemes.
The government also decides how much sugar will be sold in the open market and at times limits the stocks large buyers can hold – all measures which some industry players say lead to a cycle of boom and scarcity. “If the government intends to decontrol the industry, it is the right time. Sugar prices are low, stocks are high. I think the government will consider decontrol seriously,” Shaikh said. “Decontrol is in the interest of all the stakeholders like mills, farmers and traders. It will help all.”