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Harish Damodaran

New Delhi, Dec 20

The worst in sugar is over and retail prices may not touch Rs 40 a kg.

If they had to, they should have by now, which means they aren't going to.

Well, this is what some industry watchers believe – even as London white sugar prices for March hit a record $ 687.20 a tonne and raws at New York advanced to a new 28-year-high of 26.94 cents a pound during the recent week.

The argument given by the sceptics of further price rise is as follows: The 2008-09 sugar season (October-September) began with stocks of 10 million tonnes (mt), with production from domestic cane amounting to 14.68 mt.

The country has further, since the last season, contracted imports of roughly five mt of raw sugar and one mt of whites.

Of the five mt raws, 0.92 mt got processed during 2008-09 to produce 0.872 mt of white/refined sugar.

Likewise, 0.205 mt of whites were physically imported last season, taking the total availability (opening stocks plus production plus processing of imported raws plus imported white sugar) to 25.757 mt.

Release and consumption

As against this, the Centre made overall releases of 23.08 mt. “We believe all of this would not have been consumed, especially after the spate of anti-hoarding measures, including stock-holding limits clamped on bulk consumers.

“The actual demand may not have exceeded 22 mt, with the extra released quantities simply floating in the pipeline”, the sceptics felt.

But even assuming the entire 23.08 mt was consumed in addition to 0.21 mt of exports, the season would have closed with stocks of 2.467 mt.

To this, if the balance 4.08 mt available from already contracted raw imports (equivalent to about 3.85 mt of whites) and similarly 0.795 mt from white imports areadded, over seven mt of sugar would be available for the new season outside of production from domestic cane.

The Centre expects mills to produce 16 mt from indigenous cane in the 2009-10 season.

Shortfall

“Even in a worst-case scenario of output being only 14 mt, there will be at least 21 mt available from production and already contracted imports.

This may fall short of the demand of 23 mt or so, but it also means you would, at the most, have to contract imports of another 3-4 mt”, the sceptics noted.

This is way below the 6-8 mt imports by India being projected by many, including Brazil's Agriculture Ministry.

The latest surge in world prices has been primarily driven by Brazil's downward revision of its output estimate for next year (beginning April) to 34.6 mt, from an earlier September forecast of 36.7 mt.

But even this represents an all-time-high, working out 9.5 per cent more than this year's 31.6 mt.

No hurry to import

“Clearly, our import demand is not going to rise as much as the increase in Brazilian supplies. There's no need for mills to hurry imports now, more so when our peak period of shortage (October-November) is over and production in the 2010-11 season could cross 20 mt because of better planting by farmers in response to good cane prices”, they added.

The best proof of the worst being behind is that loose sugar in Delhi has been retailing at Rs 37-38 a kg for more than a month now, despite mills in North India not being able to start crushing operations on time.

The surplus pipeline stocks, resulting from past excess releases by the Centre, probably went a long way in meeting consumption requirements during October-November.

More Stories on : Sugar | Exports & Imports

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