Singapore — The Indian government on Wednesday announced 5 million mt of mandated sugar exports for the 2018-19 (October-September) season. To aid the exports, the government announced a Rupee 139/mt ($1.9/mt) of sugarcane production subsidy along with a three tier transportation subsidy.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
The export subsidy for 5 million mt of sugar exports works out to $150/mt, including the production and transportation subsidy, as per S&P Global Platts Analytics.
The production-linked subsidy, with an estimated 300 million mt of sugarcane production, is Rupee 8,340/mt ($115/mt).
The transportation subsidy with three slabs of Rupee 1,000/mt ($13.8/mt), Rupee 2,500/mt ($34.8/mt) and Rupee 3,000/mt($41.3/mt) based on the distance of a sugar mill from the closest port.
The markets reacted bearishly to the news, with the front-month New York No.11 sugar futures, the global benchmark for raw sugar, plunging by 46 points (0.46 cents/lb) on Wednesday to a 10-year low at 9.90 cents/lb ($218.26/mt). The front-month raw sugar futures was last lower in June 2008 when it was 9.44 cents/lb, ICE data showed.
London No.5 sugar futures, the global benchmark for refined sugar, tumbled lower as well by $5.80/mt on Wednesday to $311.70/mt.
For exports, Indian raw sugar will be available at around 12-12.05 cents/lb FOB West Coast India with a polarization of 96 degrees. Indian low quality whites will be available at $275-$280/mt after accounting for the subsidy, according Platts Analytics estimates.
The freight differentials for Indian raws going into Bangladesh, UAE and China is around 50 points ($11/mt), compared to exports from Center-South Brazil. Looking at March NY 11 futures at 10.91 cents/lb, with the October contract expiring on Friday, the raw sugar futures need to rally by 50-100 points to make Indian raws competitive, market sources said.
"Another thing in favor of Indian raw sugar is the color. Indian raw sugar has one of the best colors at 200-300 ICUMSA compared to 600-700 ICUMSA for raw sugar from Brazil and around 2,500-3,000 ICUMSA for raw sugar from Thailand," a Middle Eastern trader said.
The refineries buying raw sugar from India would not mind paying a small premium for it since the better color saves the refineries some refining cost, the trader added.
Indian low quality whites might get more competitive than Thai whites in Far-East and Eastern African destinations, with prices at a $32-37/mt discount to the front-month London Sugar futures. Meanwhile, Platts Thai 45i refined sugar in containers was assessed at a $20/mt premium to the front-month refined sugar futures.
With the Indian national election due next year and a few crucial state elections before that, the government has been trying to arrest the fall in domestic sugar prices which has resulted in growing cane arrears - currently at around $1.89 billion, as the mills are unable to pay the farmers with high fixed sugarcane prices.
The domestic sugar price in India has fallen by about 23% from the beginning of the season to $430/mt on Wednesday on the NCDEX Kolhapur market.
The government in July had hiked the fair and remunerative price (FRP) of sugarcane by Rupee 200/mt ($2.8/mt) to Rupee 2,750/mt ($38.5/mt) for the 2018-19 season.
Sugar exports out of India were required this season since the ending stock for the 2018-19 season was expected to swell up to 18.5-19 million mt, with 10 million mt of opening stock, production expected at 35 million mt and consumption estimated at 26 million mt. -- Srijan Kanoi, email@example.com
-- Edited by Elizabeth Thang, firstname.lastname@example.org