Sugar can be exported sans subsidy only under tighter global mkts: industry

Commodity is quoting at $415-420 a tonne in global market currently; industry says price range of $435-440 will make exports without subsidy support viable

Exports of white sugar might not be viable without subsidy support if international prices don’t firm up further in the next few months, trade and industry sources said.

The Centre on Thursday reduced the subsidy provided on sugar exports from Rs 6,000 per tonne (Rs  6 per kg) to Rs 4,000 per tonne (Rs 4 per kg) this year, following improvement in international prices.

"Tight sugar supply situation in the global market has pushed up the international sugar prices to 4-year high. And, the firmness in international prices is expected to continue for the next 3-4 months unless sugar output from the other major sugar producing and exporting nations starts coming in for the next season 2021-22," CARE Ratings said in a research note.

Traders and industry sources said the move won’t have much of an impact on the current exports quote of 6 million tonnes (MT), as 5.7 MT of the quota has already been contracted at the old subsidy rates. The remaining 0.3 MT will now have to be negotiated at the lower subsidy rate. Exports over and above the quota will not receive any subsidy support.

Of the estimated subsidy outgo of around Rs 3,600 crore on sugar exports, the Centre will save about Rs 60 crore because of Thursday’s decision.

Trade sources said, at present, white sugar prices in the international markets are quoting around $415-$420 per tonne (FOB) and unless this rises to at least $435-440 per tonne, exports will require subsidy support.

Rahil Shaikh, vice-chairman of the All India Sugar Traders Association (AISTA), said as far as demand and supply of white sugar are concerned there isn’t much of a problem as global supplies are tight because of the drought in Brazil, and India is sitting on a huge stockpile.

“There is good demand for Indian white sugar from neighbouring Sri Lanka, Afghanistan, and some African countries, which will only become viable if global markets firm up from here,” Shaikh told Business Standard.

He said, usually, 180,000-200,000 tonnes of sugar per month is consumed by the countries mentioned above, which means around 0.7-0.8 MT of sugar can be exported to these countries in the next 3-4 months.

Indian white sugar stocks are estimated to be around 20 MT, and domestic demand over the next 3-4 months is pegged at around 8-9 MT.

“This means that despite meeting all the domestic demand, we will have a significant surplus of around 11-12 MT left to cater to global demand, but that can only happen if global markets improve,” Sheikh added.

CARE Ratings meanwhile, added that any increase in exports above 6 million tonnes would mean reducing the closing stock substantially for sugar season 2020-21 to result in sharp improvement in domestic sugar prices going forward.

Indian Sugar, according to industry players, was trading around Rs 22-23 per kg (converted into Indian rupees) in the global markets, when the export subsidy of Rs 6,000 per tonne (Rs 6 per kg) was announced in December 2020. The domestic maximum retail price was Rs 31 per kg at that time.

Since February, global sugar prices have firmed up to around Rs 27-28 per kg, a reason perhaps for the Centre lowered the subsidy midway through the season.

“In the world markets, sugar has to reach at least $450 per tonne to enable industry to export sugar without any subsidy, which is why perhaps the Centre hasn’t totally abolished the subsidy,” Abinash Verma, director general of Indian Sugar Mills Association (ISMA), said.

“International sugar prices that have strengthened since February are expected to remain firm in the near term in light of lower estimated global sugar production, especially in Brazil, Thailand and EU. As industry players are evaluating export prospects beyond minimum quota commitments under open general licence, the consequent reduction in inventory levels would aid improvement in liquidity profile,” Sabyasachi Majumdar, senior vice-president and group head, ICRA, said in a statement.