Mills seek to export raw sugar to reduce costs

India, the world's biggest sugar producer after Brazil, is struggling to export refined white sugar profitably as world prices slump, and mills are considering selling raw sugar for the first time to cut costs.

Raw sugar is cheaper to produce, so exports would be more attractive, P Rama Babu, president of the Indian Sugar Mills Association, said in an interview. The country has lost market share to raw sugar exporters, Vinay Kumar, managing director at National Federation of Cooperative Sugar Factories, said on February 8.

India could not to take full advantage of the price premium of refined sugar due to low quality and lack of transport and storage capacity to compete with raw sugar exporters such as Brazil and Thailand. Raw sugar prices have dropped 42 per cent in the last year, and importing countries are building their own refineries.

"They don't have the logistics to export in bulk,'', Julian Stow, trading director at ED & F Man Asia, Singapore, said. "So it's a topic for discussion but it's not going to have an impact on prices or the spread between white and raw sugar this year, not until they get the ability to export in bulk,'' he added. White sugar, traded in London on Euronext.liffe, has fallen 27 per cent in the past year. Prices might be supported by India, the biggest white sugar producer, switching production capacity to raw sugar, an intermediate product that needs refining to make it fit for human consumption.

Sugar prices slumped last year because of an expected surplus for the year ending September 30 as production in Brazil, India and China was high. The global surplus may reach 7 million tonne by the end of September, the London-based International Sugar Organisation said last week.

India currently produces only refined sugar as the country consumes nearly 19 million tonne annually. Although the best quality white sugar has a premium of over $100 a tonne over raw sugar, lower purity Indian white sugar may command a premium of only $80 a tonne.

White, or refined, sugar futures for May delivery traded at $324.40 a tonne at 9:56 am London time. The raw sugar contract on the New York Board of Trade settled yesterday at 10.45 cents a pound ($230 a tonne).

Low sugar prices have made exports unattractive for Indian producers, and raw sugar costs less to produce, Babu said by phone. "There is a limited market for white sugar,'' he said.

"So we have to plan and make more raw sugar. We have to learn new ways of living in such a low price scenario.''

Indian mills can save as much as Rs 1,000 ($23) a tonne in processing costs by not refining sugar, and they can sell more of the commodity to refiners in Bangladesh, Saudi Arabia, Indonesia and Egypt, Kumar of the National Federation said.

Mills can easily produce raw sugar by stopping the process of making white crystals, R V Tyagarajan, managing director of Thiru Arooran Sugars, said. "There is no doubt producing raw sugar is the way forward. Lots of additional refining capacities are coming up in countries like Indonesia, Bangladesh and the Middle East,'' he said.

India ended a six-month ban on sugar exports on January 11 as it forecast production may reach a record 24 million tonne in the year to September, or 6 per cent more than the 22.7 million tonne forecast by the government in November.

Lower global prices for white sugar have deterred producers such as Bajaj Hindusthan and Balrampur Chini Mills, India's top two sugar makers, and rivals from exporting large quantities. Local companies have won government approvals for shipment of just 220,000 tons so far. Sugar companies are also asking the government to provide financial assistance to make exports more attractive and to stem a fall in domestic prices.

"Raw sugar exports also can't pick up without some sort of government help,'' said Prakash Naiknavare, managing director of Maharashtra Cooperative Sugar Factories Federation.