Sugar rates look southwards
Better-than-expected yields and low global prices to keep sweetener under pressure
International prices of raw sugar have nose-dived. So much so, that it makes sense for Indian sugar companies to import raw sugar even at a 40 per cent import duty. That’s why the Indian Sugar Mills Association (Isma), the body of the sugar millers, recently demanded that the import duty be raised to 60 per cent. It feels that without an increase, domestic sugar prices will fall significantly.
India doesn’t need to import sugar, given the current availability situation. For record, nearly 477,000 tonnes of sugar under the quota is expected to arrive by June 30 (that is the entire volume under quota). Also, 296,000 tonnes of raw sugar has been loaded in Brazil from June 1 and has either sailed or will be sailing from ports by June 15 for India.
As it takes 40 days for sugar from Brazilian ports to reach India, 296,000 tonnes of raw sugar would start arriving in India beginning early July. Besides, the government is expecting a surplus production in the current sugar season. Given the scenario, Isma’s demand assumes great significance.
The other major dev­e­lopment impacting the domestic sugar tra­ders is imposition of 5 per cent goods and services tax (GST) on the comm­odity. Sugar did not attr­a­ct any state tax since 1947, except for an exc­ise duty of Rs 71 per qui­ntal at the factory gate to ensure its availability at affordable price.
According to analysts, the current tariff works out to 2 per cent of the ex-mill price. Thus 5 per cent GST on the landed price will increase the cost for consumers. Sugar traders have already pressed the panic button and observed one-day strike against the GST rates.
Many sugar mills have defaulted in settling dues to farmers, banks and cooperative societies, and the wide-spread fear is any default on GST payment by mills would adversely affect traders and whole-sellers. Sugar traders are also apprehensive that they would have to pay GST on their current inventory, which was earlier tax-free. Thus free movement of sugar may get severely disrupted once GST is put into effect.
Monsoon too plays a role in determining the likely volume of production and thereby determining pricing and fate of stakeholders. Accord­ing to the agriculture ministry, the crop coverage area has risen 6 per cent from last year, up from 8.8 million hectare to 9.3 million hectares this year.
As of June 16, monsoon was seen at 10 per cent above normal. This is expected to benefit both 2017-18 and 2018-19 cane crops.
Maharashtra, which was hit by poor monsoon in 2014 and 2015, is expected to see a 70 per cent rise in sugar output during the 2017-18 season. The better-than-expected yields for this year’s monsoon combined with a dry forecast for Brazil’s centre-south region may weigh on sugar prices this week, analysts say.
Ritwik Mukherjee