Uttam Sugar Mills | Company reported profit at Rs 11.70 crore in Q3FY21 against Rs 13.32 crore, revenue rose to Rs 433.26 crore from Rs 426.68 crore YoY.
Indonesia could emerge as the largest importer of raw sugar from India and may make up for any drop in exports to Iran, where shippers are facing payment problems.
“The roles of Indonesia and Iran with regard to India’s sugar exports are set to change with Jakarta likely to import over 10 lakh tonnes against three lakh tonnes last season (October 2019-September 2020),” said MEIR Commodities India Managing Director Rahil Shaikh.
“Personally, I see Indonesia importing 20 lakh tonnes of sugar from India, which is more than Iran’s 14 lakh tonnes purchase last season,” said Indian Sugar Mills Association (ISMA) Director-General Abinash Varma.
During 2019-20, Iran imported a record 14 lakh tonnes of sugar out of the total 57 lakh tonnes shipped out from India.
“Iran is a grey area and no one knows how much of Iran money UCO Bank currently has,” said Shaikh, who is also vice-president of All India Sugar Traders Association.
Iran cannot use US dollars for selling crude oil as is done in international trade following sanctions imposed by Washington in response to Tehran’s nuclear programme.
India, world’s second-largest sugar producer, used to buy crude oil from Iran and the amount due was earlier put in accounts of Iranian Banks with UCO Bank. Tehran used it to procure key commodities such as rice, tea, sugar and drugs.
However, following US pressure India stopped buying crude oil from Iran since May 2019 after the former’s special waiver for India expired.
Iran continues to use the accounts for buying these commodities but the amount in the accounts is depleting.
In December, Reuters reported that UCO Bank had written to its clients that exports could be done only if rupees had been allocated and paid in advance.
“One option Indian exporters have is to trade in the Euro. But they are not used to it,” said MEIR Commodities India’s Shaikh.
ISMA’s Varma said India’s chances of exporting sugar to Indonesia are bright since Thailand, which accounts for 80-85 percent of Jakarta’s total sugar imports, is having a second consecutive bad crop year.
“It gives India an advantage. Also, Indian sugar is now allowed into Indonesia at preferential import duty like Thailand and Australian sugar, which will help it to make further headway,” said the official of ISMA, the apex body of private sugar mills in India.
Shaikh said that at least 16 lakh tonnes of sugar have been contracted for exports since the Union government announced a Rs 6,000 per tonne subsidy for shipments on December 16.
Under the incentive scheme, which will cost the Union government Rs 3,500 crore, up to 60 lakh tonnes of sugar can be exported.
The Centre announced the incentive to help the sugar mills clear a part of their inventories and pay cane arrears to farmers to the tune of about Rs 13,000 crore for the crop procured last season.
The incentive is, however, lower than the average Rs 9,750 per tonne provided last year.
Shaikh said exports had begun well with prices being good for raw sugar. “We are not as competitive as Brazil in the market but compared to other destinations, we are better,” he said.
However, India has an opportunity to export a good quantity until March, when the crop from Brazil, the world’s biggest sugar producer, enters the market. Arrivals of its crop ended in September.
“Sugar for exports was quoting at Rs 26,000 in December and is now Rs 27,000-27,500,” Shaikh said, adding that a major part of the exports was raw sugar.
Currently, raw sugar in New York is quoting at 15.88 cents a pound, up from 14.32 cents on December 16 when the Centre announced the export incentive.
White sugar in London during the same period has increased to $440 a tonne from $392.50 a tonne.
Sugar prices have gained 2.25 percent since the beginning of this year.
Domestic sugar prices are currently ruling around Rs 32,000 a tonne.
“Sugar prices have gained mainly since the US dollar has weakened,” said the MEIR Commodities India managing director.
Last week, world’s largest sugar trader Alvean CEO Paulo Roberto de Souza told Bloomberg that the global market will face two years of sugar shortage with production falling short of demand by 50 lakh tonnes this season and 60 lakh tonnes next season.
“It could be difficult for India to export white sugar now. We will be able to push raw sugar in view of limitations on ports, movements and containers,” Shaikh said.
While raw sugar can be exported in bulk, white sugar is shipped out in containers.
“Demand for raw sugar is good. Most countries have set up facilities or refineries for raw sugar. If Indonesia becomes the largest importer of Indian sugar, then raw sugar will play a big role,” said ISMA’s Varma.
Countries such as Malaysia, Bangladesh and those in the Gulf all have refineries for raw sugar.
“However, exports to countries such as Sri Lanka, Afghanistan and East Africa will be in whites,” Varma said.
India needs to export at least 50 lakh tonnes of sugar this season to ensure sugar mills are not burdened with huge carryover stocks.
The industry carried over 10.7 million tonnes of sugar stocks from last season to this season. The huge carryover stocks were despite a record 57 lakh tonnes sugar exports.
The carryover stocks are projected to be a high 9.6 million tonnes this season, too, in view of sugar production being high. India’s sugar production has been estimated at 31 million tonnes against 27.42 million tonnes last season. However, some industry sources now peg production lower in view of lower yield in States such as Uttar Pradesh and diversion of cane for the production of khandsari sugar.
(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.