India not expected to export sugar for up to three years

MUMBAI Wed Feb 20, 2013 3:26pm IST

1 of 2. A trader reads a newspaper at a sugarcane wholesale market in Kolkata February 20, 2013.

Credit: Reuters/Rupak De Chowduhri

MUMBAI (Reuters) - India, the world's biggest sugar producer after Brazil, is unlikely to export the sweetener for up to three years as high production costs price shipments out of the global market and a drought in major growing regions squeezes output.

A lack of shipments from India, which exported sugar in the last two years, would support global prices now trading near 2-year lows on a world surplus estimated at about 8 million tonnes.

As the world's biggest consumer of sugar, India is a key player in the global market and shifting weather conditions can make it an exporter one year and significant importer the next.

India's imports in 2008/09 and 2009/10 drove a near tripling in global sugar prices, while its exports in subsequent years helped to halve prices from a 30-year high. The Indian sugar year runs from October 1 to September 30.

"Current prices are not viable for exports," Abinash Verma, director general of the Indian Sugar Mills Association (ISMA), told Reuters.

"As of now, no, we are not exporting. If the prices remain the same, then it will not be viable for us to export."

Indian sugar futures were trading at 3,156 rupees per 100 kg by 10:26 a.m., while in London May futures settled at $495.60 a tonne on Tuesday.

GRAPHIC: Sugar prices, click link.reuters.com/vew95t

GRAPHIC: Global reaction to India activity, click link.reuters.com/max42t

Global prices are likely to come under further pressure with new season sugar supplies starting in Brazil from April.

"For exports, India needs a sharp rise in global prices, which is unlikely," said a Mumbai-based dealer with a global trading firm, who declined to be named because he is not authorised to speak to the media.

"It is unlikely for India to become a sugar exporter in the next three years."

Also from April, domestic prices are set to spike as demand from bulk users such as makers of soft drinks and ice-cream peaks with the start of India's sweltering summer, said Vedika Narvekar, a senior analyst with Angel Commodities Broking.

India's annual sugar output could drop nearly 7 percent to 24.3 million tonnes in the year to September 2013, though this would still exceed domestic consumption of about 23 million, the ISMA estimates.

The higher domestic prices mean India is unlikely to find buyers overseas for its surplus sugar. In fact, mills have been importing raw sugar, drawn by lower overseas prices.

India is likely to import 1.5 million tonnes of sugar in the year to September 2013 and imports will continue next year unless import duty is hiked, sugar broker Kamal Jain said.

CANE POLITICS

India sets a floor price that mills must pay farmers, which individual state governments can increase to ensure returns for a crop that takes around a year to mature.

For this season, the northern state of Uttar Pradesh, India's second-biggest sugar producer, has raised by as much as 16 percent the price mills must pay for cane, while mills in top producer Maharashtra have agreed to pay nearly a fifth more after protests by farmers.

With a general election to be held by early 2014, mills will face pressure to raise cane prices again for the year starting from October 1, Narvekar said. Farmers are a key block of India's voters and moves to please them form part of election strategy.

Such pressures would further push up mills' prices to domestic wholesalers and bulk consumers.

"It is difficult for India to export even in coming years, due to higher production costs. If it rises, then ultimately mills can't sell sugar below a certain level," said Mukesh Kuvadia, secretary of the Bombay Sugar Merchants Association.

Western Maharashtra and the cane-producing states of Karnataka and Tamil Nadu are reeling from a harsh drought that could drive sugar production in the 2013/14 season below consumption for the first time in four years.

Such scarcity would give farmers the upper hand in negotiating cane prices with mills next year.

Cane supplies will remain tight even in 2014/15 as drought slashes planting and affects crops, said Balasaheb Patil, chairman of the Sahyadri Co-operative Sugar Mill in Maharashtra.

(Editing by Clarence Fernandez)

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