March 13, 2015
The Financial Express | http://goo.gl/AHbOZn
A weak Brazilian currency coupled with reports of a bumper crop and a glut in the world market could affect Indian sugar exports this season.
With barely 50 days left for the crushing season to end, mills are not willing to produce raw sugar unless there are forward contracts — exporters want millers to go ahead and produce raw sugar in anticipation of a rally at some point in the season.
International raw sugar prices have fallen to an all time low of 13 cents and in such depressed market conditions, both millers and exporters are not willing to take any kind of risk, top exporters told FE.
In Pune for a sugar meet by the exporter community, Rahil Shaikh, MD, EDF & Man Commodities, painted a gloomy picture saying the industry is in a bad shape.
“India is expected to produce around 26 million tonnes (mt) of sugar with domestic consumption at 25 mt with a stockpile of 6-7 mt from the last season. At this point, one can expect some 1.5 mt of raw sugar export. But no forward contracts are happening,” Shaikh said.
The Brazilian freight compares with our domestic freight, and as such, Brazilian sugar would be preferred by countries, he added. Several exporters felt the delay in declaring raw sugar export subsidy has been a failure.
An exporter from one of India’s largest export houses blames this on glut in the markets across the world adding that Brazil, with devaluation and a bumper crop, will always remain ahead. In spite of very high interest rates, low recovery, higher freight and transit period, Brazil maintains 3 mt export per month.
So far, Iran, India’s biggest buyer last year with purchases accounting for almost half of the country’s total raw sugar exports of more than 1 mt, has not placed an order, a dealer said that this time they had the advantage of making choices between India and Brazil.
Traders blamed the fall in real after the announcement of the subsidy by the Centre for the current situation. After months of delay, the Centre decided to give mills a subsidy of R4,000 ($64) a tonne for exports of up to 1.4 mt in an effort to reduce stockpiles after five years of surplus output. Indian mills have been contracted to export an extra 20,000 tonnes of sugar, some dealers said. Although, some mills sealed deals to export 50,000 tonnes of sugar since the subsidy was agreed, dealers expect the annual figure to be less than 500,000 tonnes.
Indian raw sugar prices have fallen to $330-340 a tonne from $465 a few weeks ago.
Some dealers feel Brazil has the advantage of rapid devolution in the last few months as their rate of exchange has fallen 20-25%. Brazil’s maximum raw sugar exports are through trade houses, financed and hedged by investors and banks while India is dependent on exporters, a dealer said.
Sanjeev Babar, MD, Maharashtra State Cooperative Sugar Factories Federation, said that millers cannot store raw sugar for long since they form lumps and therefore factories will not make raw sugar unless they have contracts in hand. The federation has been awaiting a meeting with chief minister Devedra Fadnavis to resolve the issues.