February 25, 2016
Sugaronline | http://goo.gl/R91Lgc
Indian sugar exports will get a boost from the latest surge in international raw sugar prices, which witnessed the biggest single-day rally in 22 years on Tuesday after a global body predicted a worse-than-expected supply deficit for 2015/16 due to dry-spells, according to India's Financial Express newspaper.
This is good news for domestic sugar companies, already bleeding due to high state-fixed cane prices, elevated debt levels and a supply glut in the local market following a fifth straight year of surplus production.
Responding to the surge in global prices, shares of major Indian sugar companies rose up to 5% on Wednesday even when the Sensex dropped 1.4%. Share price of Simbhaoli Sugars rose 5%, followed by Dhampur Sugar Mills (4.9%), Shree Renuka Sugars (4.7%), Bajaj Hindusthan Sugar (2.1%) and Balrampur Chini Mills (1.7%).
Raw sugar futures for May delivery jumped just over 9% to 14 cents a pound on ICE Futures in New York on Tuesday, the biggest one-day gain for the most-active contract since at least March 1993. In London, May refined sugar contract gained 6.1% to US$395.90 per tonne on ICE Futures Europe on Tuesday. However, in intraday trade on Wednesday, March raw sugar shed 0.6% at 13.91 cents a pound as of (6.30 pm, India time) after earlier scaling a four-week peak of 14.11 cents, and May whites eased 0.1% to US$395.50 a tonne.
Abinash Verma, director-general of Indian Sugar Mills Association, told FE that apart from higher global supply deficit projected by the International Sugar Organization (ISO), the fears of top producer Brazil diverting more cane towards ethanol production this year aided Tuesday's rally. Usually, 55-57% of Brazilian cane supply goes for ethanol production and the rest for sugar. However, there are apprehensions that Brazil may divert some 60% of cane towards ethanol production this year, he added.
The stabilisation of sugar prices at Tuesday's level or any further uptick will encourage more mills to firm up export deals, said Verma.
Mills have already contracted to ship out 1.2 million tonnes, out of the 3.2 million tonnes of sugar they are mandated to export under a provision whereby the government provides subsidy to farmers for supply of cane for sugar production. Before the latest rally, the signing of export contracts had been slow in recent weeks due to subdued global prices. This is because mills were incurring a loss of INR4,000 (US$58.2)-INR4,500 per tonne on refined sugar exports, while the government's subsidy on cane crushing would make up for a loss of around INR3,500 per tonne. If prices stabilise at Tuesday's level, the losses on exports would come down to around INR3,500 per tonnes, which can then be offset by the government's subsidy on cane crushing.
The International Sugar Organization on Tuesday predicted global sugar deficit for the current marketing year through September at 5 million tonnes, compared with 3.5 million tonnes announced in November, anticipating lower production in India, Thailand, Brazil and the EU.