The Hindu Business Line : Sugar mills say exports viable at current rates

Price trend
Benchmark London white sugar futures for Dec closed at $377.9/ tonne on Friday.

At $370/ tonne, export price comes to Rs 17,000 f.o.b.

New Delhi , Sept. 30

The crash in world prices is not deterring sugar millers, who feel exports are viable even at ruling levels of $370-375 per tonne. All this is, of course, assuming that the Centre would lift the current ban on sugar exports by November.

The benchmark London white sugar futures (No. 5) contract for December closed at $377.9 per tonne on Friday, way below the record $497 per tonne of July 6. But domestic millers claim that the present realisations are attractive enough for resuming shipments.

At $370 per tonne, the export price comes to around Rs 17,000 per tonne free-on-board (f.o.b). If one provides for port handling (fobbing) expenses of Rs 300 and another Rs 400-700 towards transport cost from southern mills to ports, the ex-factory realisation from exports works out to over Rs 16,000 per tonne.

"We are now getting the same Rs 16,000 per tonne on domestic sales too. That makes exports eminently viable, even if not as profitable as before," said Mr M. Manickam, Vice-Chairman and Managing Director, Sakthi Sugars Ltd. Prior to the export ban imposed on July 4, mills had supplied to Pakistan at as high as $518 per tonne (cost & freight), translating into roughly $475 f.o.b. or Rs 21,000 ex-mill.

While Pakistan has slowed down purchases since then, there is, however, a market for Indian sugar in Indonesia (about 700,000 tonnes), Sri Lanka and Bangladesh (500,000 tonnes each) and East Africa (mainly Somalia and Tanzania). But the real potential lies in West Asia, according to Mr Narendra Murkumbi, Managing Director, Shree Renuka Sugars Ltd.

"It is a 70-lakh tonne (lt) market, where the European Union was until recently selling 15 lt. About five lt of this 15-lt vacated space would be met by al-Khaleej and others, who are setting up new refining capacities in Dubai and Saudi Arabia. They would mostly refine raw sugar imported from Brazil," Mr Murkumbi noted.

That still leaves an unmet 10-lt white sugar demand, which the country is well positioned to supply, given the freight cost difference of $40-50 per tonne between raw and white sugar from Brazil.

"Raw sugar is an industrial commodity that can be shipped in Panamax and Supermax vessels of 40,000-70,000 tonnes. This is not so with white sugar, which has to be handled carefully and can be carried only in 10,000-15,000 tonne vessels. That makes Brazilian whites costlier," he added.

The big question though is whether the Centre will open up exports by October-end, when the peak festival demand due to Dussera, Diwali and Id would have subsided. The temptation not to do so is strong, more so for statistical reasons. Sugar has a weight of 3.62 per cent in the wholesale price index, which is oddly higher than cement (1.73), steel (3.2) or even diesel (2.18).

At the same time, a crash in sugar prices may not be sweet when the cane-growing belt of Uttar Pradesh is due for elections early next year.

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