Indian Sugar Staying at Home as Local Prices Rally on Crop

  • Exports seen less than 50% of government order: Olam, ED&F Man
  • Domestic prices rallied more than 40 percent since mid-June

A surge in Indian sugar prices means the world’s second-largest supplier will sell more on the domestic market and less abroad.

India will export less than 50 percent of what the government ordered, according to ED&F Man Holdings and Olam International. While expectations for Indian exports were bearish for the market six months ago, the estimates are now being lowered, according to John Stansfield, an analyst at soft-commodities trader Group Sopex.

Indian sugar prices rallied more than 40 percent since mid-June on expectations the current crop will turn out smaller than initially forecast. The gains mean the nation’s millers make more money selling their production locally, Jack Hannon, an analyst at Olam, said before the Dubai Sugar Conference, a private event for 400 industry leaders starting Sunday.

"Exports are more derived by price than by policy," Piero Carello, a London-based general manager at Olam, said Saturday in an interview in Dubai before the event. “We don’t see India as a relevant factor to the world market."

Prime Minister Narendra Modi’s government in September ordered mills to compulsorily export 4 million metric tons in the 2015-16 season that started in October and offered a subsidy on the shipments. Less than half of that will be shipped, estimated Kona Haque, head of research at ED&F Man. 

Olam sees overseas sales of 1.5 million tons at current prices as Sucrees et Denrees SA’s Commercial Director Auke Vlas foresees the same, he said at the conference Sunday. Stansfield of Group Sopex said exports could be 2.5 million tons, but "that number is reducing by the day."

El Nino-induced dry weather is reducing production in India, with the nation’s sugar mills association cutting its 2015-16 output estimate by 1 million tons to 26 million tons earlier this month. Production could fall to 24.5 million tons next season and dry weather means farmers were unable to plant cane that is usually harvested 18 months later, according to researcher Green Pool. Sucden forecasts the crop at 23.5 million tons and some estimates for 2016-17 are as low as 23 million tons, Stansfield said.

"The domestic prices are soaring because they are seeing reductions to the current crop," Haque said. "The El Nino led to low reservoir levels. Maharashtra was just too dry."

To be sure, not everyone has the same view for India. Olam, which owns mills in the nation, sees this season’s output at 26.5 million tons and 2016-17 at 25 million tons, Hannon and Carello said. That’s still higher than consumption at 24.5 million tons. India will remain well-supplied as the nation has stockpiles, Carello said.

"Even if India were to go down to 24 million, maybe 23 million next year, is it a tight situation? Does it impact the world market? Does India need to import? Absolutely no," Hannon said. "You would need to have two, three or four years of 2 million-ton estimated domestic deficit before there’s a significant impact in the world market."

Reduced exports from India are helping boost the premium white sugar futures command over the raw variety, Stansfield said. The white premium rose to a five-month high of $117 a ton Friday, also boosted by record Chinese imports and a delay to the start of crops in Central America.

A lower Indian crop next season may mean the nation will no longer be a net-exporter of sugar and it may even bring in some, said Stansfield, who has followed the market for more than 20 years. Raw sugar prices will be driven by estimates for the size of the India’s next crop, he said.

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