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Informist, Thursday, Dec. 26, 2024

 

By Taniva Singha Roy

 

MUMBAI – Domestic sugar prices, which have plummeted in the last two months, are likely to rebound sharply if the government lifts the export ban, market experts said. Prices are likely to bounce back from their current lower levels by the end of January or February when there is more firm data on actual production, they said.

 

Sugar prices, which have fallen by over INR 270 in the last two months, will slowly start recovering to the previous price levels, Semal Sudhir Jain, secretary of the Kolhapur Karad Sangli Sugar Merchants Association, said. Moreover, the demand from bulk sugar consumers such as ice cream and cold drink manufacturers is likely to increase during February when cooler temperatures subside, he said.

 

Sugar prices across the country have fallen to around INR 3,400-3,700 per 100 kg and are likely to increase to the previous levels of INR 3,650-3,950 per 100 kg, traders said. Sugar prices in the country will largely depend on government policies on export, minimum selling price and monthly sales quota.

 

The Centre has set the domestic sugar sales quota for December at 2.2 million tonnes, unchanged from November, but down 8.3% from 2.4 million tonnes a year ago. Though the sales quota for Uttar Pradesh, the largest producer, was cut by nearly 15% to 803,801 tonnes, prices fell in the state due to muted demand. For Maharashtra, the Centre raised the sales quota by 2% from a month ago to 609,078 tonnes. Here too, prices fell due to sluggish demand. The government fixes the maximum quantity of sugar mills can sell per month to support prices and help mills clear arrears to sugarcane farmers.

 

Though sugar production in 2024-25 (Oct-Sept) is projected to be marginally lower than last year, the industry is batting for exports. According to the Indian Sugar and Bio-energy Manufacturers Association's first advance estimate, gross sugar production in the country is estimated at 33.3 million tonnes in 2024-25, down 2.3% from 34.1 million tonnes in the previous year.

 

If the output is lower than that, it could lead to prices rising, Vinod Jain, executive Director at Deccan Sugar Mills, said. Considering the production will be at 33.3 million tonnes, along with a carry forward stock of 8.6 million tonnes and domestic consumption demand at 29 million tonnes, there will be ample stocks left for the diversion of sugar towards ethanol production and exports, Jain said. If the government does not allow exports, prices are likely to fall further, Jain said.

 

EXPORT OPTION

The government might allow 10 million tonnes to be exported after February, said Jain, secretary of the Kolhapur Karad Sangli Sugar Merchants Association.

 

A more clear trend of production will emerge after Jan. 15, when ISMA and the National Federation of Cooperative Sugar Factories release estimates on production and crushing. Based on these and other factors, the government will decide if it wants to resume exports, said Mukesh Kuvadia, secretary of the Bombay Sugar Merchants Association.

 

The chances of resuming sugar exports from February are high, said Naresh Gupta, a trader in north India, said.

 

Last week, Food Secretary Sanjeev Chopra said the government would take a call on exports after ensuring there was enough sugar for consumption and ethanol requirements. "As we mentioned many times in the past, the order of priority of sugar utilisation is first ensuring the domestic consumption, the second is the diversion for ethanol, and the third is export," Chopra said at the annual general meeting of ISMA. 

 

India imposed a ban on sugar exports in June 2022 amid rising prices and fears of a poor crop. The ban was extended until further orders in October 2023. However, the country allowed exports of sugar on request to certain countries. In 2022-23, India allowed mills to export 6.2 million tonnes of sugar, compared with a record 11.1 million tonnes in 2021-22.

 

The country's gross sugar production in the 2024-25 season is either likely to be on par or a little higher than last year as crop conditions are good and rainfall was above normal this season, Sanjay Khatal, managing director of Maharashtra State Co-Operative Sugar Factories Federation said.

 

The government should give a mill-wise quota or allow a minimum amount of 500,000 tonnes to be exported, Khatal said. "India should remain an exporter and not completely step back," he said. According to ISMA, the country is likely to be able to export about 2 million tonnes of sugar in 2024-25 as domestic stocks are comfortable.

 

The government has allowed sugar mills to freely divert sucrose from all sugarcane-based feedstocks such as sugarcane juice/sugar syrup, B-Heavy Molasses, and C-Heavy Molasses for ethanol production in the ethanol supply year started in November. Amid concern over lower sugar production, the government limited sugar diversion for ethanol output at 2 million tonnes in December last year to ensure sufficient sugar availability in the country.

 

World sugar production in 2024-25 is estimated at 186.6 million tonnes, up 2.8 million tonnes from last year with higher production in China, India, and Thailand more than offsetting lower production in Brazil, according to the US Department of Agriculture.

 

MINIMUM SELLING PRICE

The Centre must increase the minimum selling price as mills in Maharashtra are unable to pay the workers and vendors, said Khatal. Although there is no ceiling on the market price of sugar, the government is indirectly controlling the prices by setting a monthly sales quota, he said. Hence, the Centre should increase the minimum selling price so that mills are not in losses, Khatal said.

 

The total cost of producing 100 kg of sugar is around INR 4,050, but the ex-mill rates of sugar do not rise above INR 3,650-3,700 per 100 kg. The mills face difficulty in getting loans as banks base them on the minimum selling price and not on the market price, Khatal said. "We have urged the prime minister to increase the MSP (minimum selling price) to make it INR 4,051 (per 100 kg)," Khatal said.

 

Khatal said the current fair and remunerative price of sugarcane works to be higher than the minimum selling price of sugar. A fair remunerative price of INR 340 per 100 kg for sugarcane at a recovery of 10.25% amounts to INR 3,317 per 100 kg of sugar, which is 107% of the minimum selling price of INR 3,100 per 100 kg, according to him.

 

Market players are expecting a joint ministerial meeting in January to decide on the minimum selling price. 

 

In 2025, as far as the market is concerned, a lot will depend on government policies.  End

 

Edited by Saji George Titus

 

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