LONDON/MUMBAI: Indian domestic sugar prices have surged, boosting incentives for production of low-quality white sugar for the local market and giving Brazil a competitive edge in the export market.
Sugar prices in India have risen more than 15 percent in a month on concerns over lower than expected output because of drought, making exports less attractive for mills even after export incentives, dealers said.
The government in India, the world's second-biggest sugar producer behind Brazil, has approved plans to pay farmers 45 rupees per tonne of cane produced, provided that mills manage to export their quota.
"The Indian (export) sugar that people were expecting isn't there," one senior European trader said.
Dealers quoted Indian low-quality white sugar at $415 a tonne FOB, equivalent to about $4 below ICE London front-month futures.
Offers of Indian sugar would need to be at discounts of about $30 a tonne to futures to compete against Brazilian supplies in key export markets.
One trader quoted Brazilian low-quality white sugar in containers at about $18 below London ICE futures.
"The traditional destinations for Indian sugar in Africa and the Middle East are not being taken," the European trader said.
"Indian sugar will stay in the Far East and Brazilian sugar will stay in West Africa."
Indian mills have contracted to export about 850,000 tonnes of sugar so far in the season that began on Oct. 1 and nearly 400,000 tonnes have already been dispatched, dealers said.
A Mumbai-based dealer with a global trading firm said: "The difference between local and overseas prices has been widening. Until last week mills were able to sign export deals at around $400 a tonne to Myanmar. Now sellers are quoting $430, which buyers are refusing to pay."
European and Indian traders said they see little prospect of Indian raw sugar exports in the near term because world prices are too low.
"Some mills are now waiting for an improvement in prices in the world market," said Sanjeev Babar, managing director of Maharashtra State Co-operative Sugar Factories Federation.
A New Delhi-based dealer with an Indian trading firm said that many mills think prices could jump sharply after the crushing season because of lower production. "Now mills don't want to sell sugar at a discount for export," the dealer added.
The first back-to-back drought in three decades is expected to cut Indian sugar production drastically this year, with a risk that output could drop below consumption for the first time in seven years in the 2016/17 season.
Source :economictimes.indiatimes.com
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