India allows 1mt of sugar exports

After many weeks of procrastination, the Indian government allowed sugar exports of 1mt (million tonnes) on 22 November last year to give relief to local factories contending with the prospect of bumper production of up to 26mt in the current season to end in September 2012. Production of this size cannot but put pressure on sugar prices. Industry official Om Prakash Dhanuka says the foot dragging on exports by the government was because of the pincer attack coming in its way from all quarters because of high rates of food inflation till recently. “Export sanction delays will not, however, find justification since sugar in recent periods has not contributed to food inflation at all. Moreover, at no point Indian Sugar Mills Association did not leave the government in doubt that India’s sugar production in 2011/12 will leave considerable unmanageable surplus with the industry after fully meeting domestic requirements,” says Dhanuka. India is the world’s second largest producer of sugar but its use of the commodity is the highest among all countries.
The industry says that the sanction came too late and also for too little a quantity. The monsoon in India’s cane growing centres having behaved well, a bountiful cane crop was expected as early August. Assuming Indian production will be 26mt, the total supply will be close to 32mt taking account of the season’s opening stocks. ISMA projected local consumption of 22mt will leave a season-end surplus of 10mt without exports. It is in order to reduce the inventory burden of the industry that ISMA was long pleading with the government for export sanction of up to 4mt. Consultancy firm Kingsman SA, however, says that while late crushing start in Maharashtra, India’s largest sugar producing state, could restrict national production to 25.5mt, consumption is likely to be higher at 22.5mt. Whatever may be output and local sugar use, delays in export sanction are translating into slow conclusion of business and much lower price realization than would have been the case had exports been flagged off a few months earlier. Raw sugar futures in New York were down 27% last year in a first annual decline since 2007. White sugar in London fell 19% in the same period to $602 a tonne.
According to ISMA director general Abinash Verma, falls in sugar prices were caused by reports of emerging surpluses during 2011/12 season. This is also the reason why Indian factories secured permits for export shipments of only 232,454 tonnes out of sanctioned exports of 1mt, says Verma, adding that at prevailing world prices “we are still making some money and importantly saving on carrying and interest costs.” Much of December and first week of January are lean periods for business in the West and industry officials expect more bounce in export sales now onwards. With rise in business, world sugar prices are to move forward.
There is consensus that after two years of shortage, the world sugar production this season will be substantially more than demand. But estimates of surplus by different agencies vary. Surplus estimate of 4.5mt by International Sugar Organization will appear conservative compared with the Kingsman latest projection of 8.2mt, scaled down from its earlier 9.2mt. This is because production rise to 174.1mt from Kingsman’s earlier estimate of 173.2mt will be more than offset by increased global demand, particularly from Asia. Between its third and fourth estimates, a global demand rise of 1.819mt has occurred on account of low sugar prices. And as much as 1.1mt of that incremental demand are on Asia account.
Dhanuka says unlike India where this season’s challenge is to
unburden itself of surplus by way of exports, China is expected to take advantage of low prices to rebuild sugar stocks as part of its overall policy to control inflation. Kingsman report says on the back of a 16% rise in area under sugar beet and 6% for cane, China’s sugar production will surge to 12.5mt. But this will still fall short of the country’s consumption requirements of the sweetener. Therefore, Chinese imports will be to take care of demand supply gap and also for restocking purposes. In the beginning, there were fears that Thailand’s marauding floods during the 2011 monsoon would wreck havoc on cane crop and therefore, sugar production would take a hit. But these proved unfounded and Thailand, the world’s second largest sugar exporter after Brazil will have a production of 10.6mt. The country, however, is encountering some logistical problems in despatching sugar to overseas destinations.
Brazil being the world’s largest producer and exporter of sugar is the principal market mover. The country’s official farm forecasting agency Conab is projecting 2011/12 Brazilian cane crop at 571.5mt, down 8.4% from a year earlier and 3% less than the August projection. As a result, sugar production is likely to be pared by 3.4% to 36.88mt. Production setback for ethanol will be a stiffer 17% to 22.86bn litres. A common practice among sugar factories in this South American country is to juggle the use of cane for making sugar and ethanol. If high sugar prices for most of 2011 encouraged factories to lay claim to at least half the cane crop for making sugar, prevailing low prices for the commodity will likely see emphasis shifting to ethanol production. In the meantime, fall in sugarcane yield in Brazil resulting from neglect of renewal of cane fields has increased sugar production cost to about 20 cents a pound.