International BusinessMNCs plan sugar imports to cash in on price boom
Prices of the sweetener may go up by 15-20 per cent.
- Duty free sugar import only through EDI ports: DGFT - Sugar imports set to touch record 2.5 million tonnes - Indian generics have made drugs affordable: Sharma - Local lenders find favour with MNCs - Nafed excluded from white sugar imports - 4 telecom MNCs face probe in India
Sensing a huge profit opportunity in rising sugar prices, which have touched a 28-year high, multinational trading firms are planning to import the sweetener in a big way. At least two such firms confirmed that they had signed contracts to import sugar for sale in the Indian market.
Sugar has been one of the most outperforming agricultural commodities. From January onwards this year, sugar prices have gone up by over 40 per cent and there is further scope for increase. Obviously, multinational traders active in India don’t want to miss the opportunity that this rally presents.
Date
Sugar M30
Rs/Qtl
% rise*
Aug 1, ‘08
1,755.00
54.49
Jan 1, ‘09
1,978.00
38.49
Apr 1, ‘09
2,196.50
24.30
Jul 1, ’09
2,500.00
8.44
Aug 6, ’09
2,775.00
Mumbai wholesale rates; * Compared with Aug 6, 2009 The cost of imported sugar at Indian ports is around Rs 25 a kg and these traders are planning to sell the sweetener at Rs 28-30 a kg in the next festive season. Thailand, where sugar is quoting at $540 a tonne, including cost, insurance and freight (CIF), is the nearest place from where the commodity can be imported.
In 2006-07, these traders had procured a huge quantity of wheat as the domestic output was lower, and made big money. This had led the government to virtually bar them from procuring the commodity the next year. And, entry of these traders into sugar at this time is indicative of the fact that prices of the sweetener would stay high for some more time.
The Indian sugar mills association has already said that the year-on-year stock has halved to 4 million tonnes by July-end, triggering shortage fears. The sugarcane crop in India is expected to fall further as monsoon has been delayed in Uttar Pradesh, the largest sugar-producing state. The target of the 2009-10 crop is now being lowered to 16.1 million tonnes from the earlier projections of 19 million tonnes. It was 14.7 million tonnes in 2008-09.
As far as the world production is concerned, London-based commodity research house F O Licht has cut its forecast for 2008-09 to 149.3 million tonnes (raw value) from 156.3 million tonnes. In 2007-08, the world output was 168.9 million tonnes.
Mexico has said that it would import 4 million tonnes of sugar this year, putting further pressure on the international market. Last year, Mexico’s sugar exports had helped the US plug its deficit. Brazil, the largest producer of sugar, is facing the prospects of lower crop due to excessive rain. All these factors have led sugar prices to soar.
A Barclays Capital commodity research report says, “Given the forecasts that the wet weather will continue into August and that the El Nino effect is likely to mitigate prospects of a dry end to the harvest, our original projection for Brazilian output of 37.5 million tonnes now appears to be too high.”
Even Brazilian trade body UNICA has put the country’s 2009-10 sugar production at 31.2 million tonnes. “Our current price target for sugar reaching 22 cents per pound (lb) on the March 2010 contract may prove conservative if El Nino lives up to its reputation,” the Barclays report adds.
On Friday, sugar prices continued to rally in overseas markets with the Intercontinental Exchange (ICE) futures crossing 20 cent per pound (lb) and London LIFFE futures quoting at $527.80 per tonne. Yesterday it had reached its 28-year high of 19.82 cent. This means prices may go up further by 15-20 per cent by March end.
And, if international prices rose to this level, then the cost of Indian imports might go up to Rs 30 per kg, thereby making retail prices go through the roof, said a local sugar trader.
The sugar industry has been demanding subsidies on interest payment. There is also a suggestion that imports of sugar by public sector units should be subsidised like pulses and wheat imports by the Food Corporation of India.