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India increases minimum sale price of sugar to Rupee 31/kg

Singapore — India raised the Minimum Selling Price (MSP) of sugar in the country on Thursday to Rupee 31/kg, up 6.89% from Rupee 29/kg previously, in a move expected to help sugar mills cover their cost of production and clear cane arrears.

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With Indian sugar production expected to overtake consumption in the 2018/2019 marketing year, mills are facing rising sugar stockpiles leading to downward pressure on sugar prices and rising cane arrears. Cane arrears were at Rupees 200 billion ($2.8 billion) in January, up steeply from Rupees 139 billion a year ago, according to the Indian Sugar Mills Association.

Rising cane arrears and working capital issues for mills have led to sluggish exports in the current season. Based on S&P Global Platts' shipment data for the fourth quarter of 2018, exports of Indian low quality whites and raws were under 470,000 mt, well below the 1.3 million mt a quarter needed to meet the government's target of 5 million mt in 2018-2019.

Some traders said that Indian mills would still have to export sugar, given the high inventory level this year. The government has also assigned monthly quota on mills to determine how much sugar can be sold in the domestic market, while the rest may have to be exported, market sources said.

However, other market sources held the view that the hike in domestic sugar price could further dampen Indian exports, resulting in higher domestic stock and supporting prices in the global sugar market. Some believed that the government policy might err on the side of caution rather than promote exports.

"Indian sugar might not be there to pressure prices this year. This could possibly set a bullish tone for Thai sugar," a trader based in Hong Kong said.

-- Brian Ng, brian.ng@spglobal.com

-- Edited by Shashwat Pradhan, shashwat.pradhan@spglobal.com

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