Sugar import permit unlikely to ease prices: ICRA
The Dollar Business Bureau
ICRA, in its new report, predicts that the limited duty-free import of sugar allowed by the Government of India will not help ease sugar prices, which have been rising owing to a 19% cut in output this year. The sugar output in the current year is forecasted at 20.3 million tonnes (mt) while the annual domestic sugar demand is pegged at 24 mt.
The government expects a comfortable supply of sugar in the country after adding last year's closing stock of 7.7 mt and an additional import permit of 0.5 mt.
Nevertheless, the report released by ICRA says that the sugar prices will stay firm as the closing stock will drop to 4.5 mt – 5 mt this year, which is only sufficient to meet demand for two months into the new sugar year starting September 2017, in comparison with last year's closing stock of 7.7 mt, which could comfortably meet demand for over 3 months. The ideal sugar stock is usually 6 mt, which is just enough to supplement around three months of domestic consumption.
Sugar prices had escalated to a six year high of 36,000/mt (26% y-o-y hike) during SY 2017, owing to production cuts.
The import of 0.5 mt allowed until June 12, 2017 will be restricted in quantity for different zones and only importers owning sugar refineries would be eligible for the permit. This additional import allowance is seen as a boon for the western and southern states of Maharashtra, Karnataka and Tamil Nadu, which have undergone large cuts in sugar produce during the year due to harsh drought conditions.
To keep the domestic prices in check, the government routinely controls the national supply and stock of sugar, using controls like duties and temporary export/import moratorium. During 2015, when there was a glut in sugar output and sugar prices fell to all-time lows, the authorities had intervened to hike import duties from 25% to 40%. In the current times of shortage in supply, the duty structure has been temporarily changed to ensure sufficient sugar supply.
"Currently, global raw sugar prices are around 16 cents/lb. At the current prices, the total conversion cost into refined sugar is likely to be around Rs. 32,000/MT. Thus, the importers are likely to benefit around Rs. 4000-5000/MT while considering the current domestic sugar price at Rs. 36,000-37,000/MT," the report stated.