Indian Sugar Exports Jumping as Brazil Drought Fuels Rally

Sugar shipments from India, the world’s second-largest producer, are poised to climb as the biggest monthly gain in prices since 2011 and a state subsidy help mills compete with supplies from Brazil and Thailand.

Shipments may total 2 million metric tons to 2.2 million tons in the year ending Sept. 30 if prices remain at current levels, said Rahil Shaikh, managing director of ED&F Man Commodities India Pvt. Exports totaled 1.3 million tons between October and February, compared with full-year sales of 345,000 tons in 2012-2013, according to the Indian Sugar Mills Association, or ISMA.

Raw sugar in New York entered a bull market last week, climbing more than 20 percent from a January low, as dry weather threatened crop yields in Brazil, the world’s top producer and exporter. An Indian state subsidy of 3,300 rupees ($53) a ton will help mills including Bajaj Hindusthan Ltd. (BJH) and Balrampur Chini Mills Ltd. (BRCM) boost production of raw sweetener for export and prevent stockpiles expanding from a five-year high.

“We should export more as we have adequate stocks,” Mumbai-based Shaikh said in a phone interview on March 3. Global prices are attractive for exports compared with domestic rates, he said.

Futures in New York rallied 14 percent in February, the biggest monthly advance since June 2011, as dry weather in Brazil depleted shrivels this year’s cane crop. The price climbed 20 percent from the 43-month closing low of 14.74 cents a pound on Jan. 29. The contract for May delivery rose 1.3 percent to 17.97 cents on ICE Futures U.S. today.

Shares Climb

Balrampur Chini, the nation’s second-largest producer, rose 3.4 percent to 47.80 rupees, Dhampur Sugar Mills Ltd. increased 4.7 percent to 34.40 rupees and Bajaj Hindusthan, the biggest producer, ended unchanged at 13.10 rupees, while the benchmark S&P BSE Sensex index rose 0.3 percent.

“An increase in exports would reduce losses at sugar companies,” said Sanjay Manyal, an analyst at ICICIdirect.com. in Mumbai. “It will be a relief for the sugar sector.”

Large and small speculators excluding index funds turned bullish on sugar in the week ended Feb. 25, according to U.S. Commodity Futures Trading Commission data compiled by Bloomberg. They were net-long by 12,045 futures and options after being net-short by 42,635 contracts a week earlier.

Brazil Impact

Millers in Brazil’s main growing region will process 570 million tons of cane in the 2014-2015 season starting in about April, says Copersucar SA, a producer cooperative with 47 associate factories. That’s down from a previous forecast of 610 million tons.

“Potentially, sugar exports from Brazil may be lower and the market has to find some alternatives and India can be one of the suppliers,” Michael McDougall, a senior vice president at Newedge Group, said by phone from New York on March 3. “These prices will help India potentially increase exports of raws as well as white. India has adequate stocks and the question is by how much the production will fall this year and prospects for next year.”

Inventories in India surged to a five-year high of 8.85 million tons at the start of this season, enough to meet demand for four months, according to ISMA. Production will probably drop 6.4 percent to 23.5 million tons this season, the smallest since 2009-2010, according to a Bloomberg survey last month.

Export Incentives

“Had the government decided on the exports subsidy two months ago, the opportunity to increase production of raws would have been more,” said Abinash Verma, IMSA’s New Delhi-based director general. “Producers now have about a month’s time left to produce raws.”

India’s Food Ministry last week said raw sugar exporters will get a subsidy to meet expenses on marketing and promotion and the aid will be revised every two months. Producers in Brazil, Thailand and Australia have opposed the incentive, calling it a violation of World Trade Organization rules.

Indian mills produced about 850,000 tons of raw sugar in the four months through January, while total output was 16.9 million tons at the end of February, ISMA said yesterday.

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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