Indian Sugar Prices Outpace Drop in Global Prices

Sugar prices in India on the NCDEX Kolhapur market have plummeted faster than those on the London No 5, the global reference price, front-month futures contract, on the back of a bumper crop in India, with sugar production estimated at 31 million mttq for the 2017-18 (October-September) season, up nearly 53% year on year, S&P Global Platts Analytics data showed.

From the beginning of the season in October 2017, prices on the NCDEX Kolhapur market have sunk by almost 25% to $419/mt. Whereas, the price on London No 5 front-month futures has fallen by close to 10% from the beginning of the season to $329.20/mt on April.

“The only good thing about prices falling fast in India for the domestic mills is that the government would need to provide lesser subsidy to the mills to export and hence the export subsidy could come in earlier,” an Asian trader said.

The spread between domestic prices in India and that on the London No 5 prompt-month futures has narrowed from $192.50/mt on October 3 to $89.80/mt on April, S&P Global Platts data showed.

The Indian government has tried different policies over the past few months to bolster domestic sugar prices by scrapping the 20% duty on exports and imposing a mill-wise Minimum Indicative Export Quota (MIEQ) for 2 million mt exports until the end of the 2017-18 season. However, these measures could not curtail the downward trend of domestic sugar prices since Indian mills were not willing to export without an export subsidy. “With Indian domestic sugar prices much higher than the world market, Indian mills require an export subsidy for Indian mills to export,” a trader said.

The export subsidy if announced will likely only be after state elections in Karnataka — the third-largest sugar producing state in India — are over on May 15, market sources said.

The last time India exported sugar was in 2015-16 when the government awarded a production subsidy of Rupees 45/mt (70 cents/mt) of cane crushed on the condition that the industry exported about 3.2 million mt of sugar and also supply a specific quantity of ethanol for blending, Platts Analytics data showed.

Domestic sugar prices in India have been in a bear grip this year, amid an unprecedented rise in cane availability, feverish pace of crush and record agricultural yields which continue to push production estimates upwards.

In Uttar Pradesh, India’s largest sugar production state, mills have been producing sugar at a rate of about 47,500 mt/day during the second half of April, with production this season as on April 16 standing at 10.5 million mttq, up 24% on the year, data from the State Cane Commissioner’s Office showed. The biggest year on year increase in production is estimated from state of Maharashtra, with production at 10.7 million mttq, up 154% year on year.

The strong production estimates from India is part of a wider trend of a record production in Thailand and robust output in EU and Pakistan. With global production relentlessly increasing, the surplus for the 2017-18 season is estimated to be the largest since 2006 at 11.46 million mtrv, Platts Analytics data showed.

In line with the downtrend in global sugar prices, Thai spot refined sugar has dropped by 25% from the beginning of the season to $340.40/mt on April, Platts data showed.

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