India’s sugar exports are likely to be at least 25 percent lower during the current sugar season (October 2020-September 2021) owing to “logistics constraints”, particularly due to shortage of container and increase in waiting time for vessels, according to All India Sugar Trade Association (AISTA).
AISTA crop committee, which met on February 6 and made a detailed assessment on production and balance sheet on the commodity, expects sugar exports to drop to 43 lakh tonnes this season against 57 lakh tonnes last season.
In a statement providing details on production and exports, the association said large movement of grains, including soybean to China, has led to congestion at ports and increased the waiting time for ships.
The 43 lakh tonnes exports do not include the prospects of exports to Iran, the largest buyer of the commodity from India, last year.
AISTA vice-president Rahil Shaikh, who is also MEIR Commodities Managing Director, had expected Indonesia to make up for the loss of shipments to Iran but this has now been derailed by the shipping woes.
Iran bought 14 lakh tonnes of sugar last season. The problem for India, the second-largest sugar producer in the world, is that Tehran is barred from using the US dollar to sell crude oil as is done in global trade.
This follows sanctions by the US against Iran’s nuclear programme. India had been buying crude oil from Iran earlier and utilised the amount, deposited in UCO and IDBI Banks, for selling commodities such as rice, tea, sugar and drugs.
But India has stopped buying crude oil from Iran since May 2019 following intense pressure from the US, which refused to extend the special waiver for New Delhi for such merchandise trade.
Though Iran is using the money in the UCO and IDBI bank accounts to buy key commodities such as rice and tea, the balance is shrinking. Thomson Reuters reported in December 2020 that UCO Bank has told its clients trading with Iran that exports could be done only if the money had been allocated and paid in advance.
In view of these developments, AISTA said chances of exports to Iran are bleak as the balance has almost been “drawn down”.
This will mean that Indonesia will be the largest buyer of Indian sugar with its purchases going up to as much as 20 lakh tonnes.
India’s sugar export chances were also seen bright since for the second consecutive year sugar production in Thailand, which accounts for 80-85 percent Indonesia’s sugar imports, is expected to be low.
The lower export projections come at a time when the Union government has come up with a Rs 3,500 crore incentive for sugar exports. The sugar industry hoped that it could export up to 60 lakh tonnes of the commodity in view of the incentive.
On a per-tonne basis, the incentive would work out to Rs 6,000 per tonne against the average Rs 9,750 last season.
The incentive was announced by the government to help sugar mills clear part of their dues to cane growers for the crop procured last season. The dues were pegged at Rs 13,000 crore in September 2020.
The incentive would mean that exporters can offer sugar lower than Rs 30,000 a tonne compared to the price of about Rs 32,000 they get in the domestic market.
In the global market, white sugar is quoted at $480.30 (Rs 35,000) a tonne in London, while raw sugar is ruling at 16.70 cents a pound (Rs 27,000) in New York.
According to Trading Economics website, raw sugar has gained eight percent month-on-month.
Exporters now expect the logistics hurdles to clear from the first week of April 2021 but see running out of time before the season ends. Also, Brazil, whose absence from the market since December 2020 till March 2021 was seen as an advantage to India, will return with its new crop.
It would be June until Brazil sugar reaches Asian destinations, which perhaps could provide India with some leeway in the Gulf markets. “Some sudden demand from the Gulf can really lift exports but for now AISTA has not counted on it,” said an exporter, on condition of anonymity.
Production estimated higher at 29.9 million tonnes
On the other hand, AISTA has estimated sugar production this season at 29.9 million tonnes against 27.40 million tonnes last season. Indian Sugar Mills Association, the apex body of private sugar mills, has pegged production at 30.2 million tonnes.
AISTA said two million tonnes of sucrose would be used for ethanol production. The traders' body has projected a 16.6 percent drop in Uttar Pradesh’s sugar production. The sugarcane crop in Uttar Pradesh and Bihar region has been affected by red rot disease, it said.
Production in Uttar Pradesh has been pegged at 10.5 million tonnes against 12.60 million tonnes last year, while Bihar’s output is seen declining to 0.55 million tonnes from 0.73 million tonnes.
Maharashtra’s production will likely be 64 percent higher at 10.2 million tonnes compared with 6.20 million tonnes the previous season. Karnataka is expected to produce 25 percent more this season at 4.3 million tonnes.
AISTA has projected the carryover stock at 10.6 million tonnes, a tad lower than the 11 million tonnes last season. ISMA has estimated the carryover stock at 8.9 million tonnes.
(Subramani Ra Mancombu is a journalist based in Chennai, who writes on topics in commodities and agriculture.)Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.