NEW DELHI - The novel coronavirus has knocked down markets the world over, and sugar is no exception.
The benchmark raw sugar prices, which surged to a near-three-year high of 15.9 cents per pound on Feb 12 on Intercontinental Exchange Futures US, crashed to an 18-month low of 10.45 cents last week, as demand has eroded due to the spread of the virus and the fall in crude oil
TREND
prices that has made sugar more attractive for Brazil, the largest producer.
The 34% fall in sugar prices in a matter of weeks has made exports from India unviable, and brought fresh overseas deals to a standstill, dashing the industry's hopes of exporting the highest quantity of sugar in a decade.
When global prices had rallied early February, there was a spike in the number of mills offering sugar for exports, an official with a multinational firm said.
At that time, the industry was hoping that exports would easily top 5 mln tn, but now the estimates range between 4.0 and 4.5 mln tn, an industry official said.
"Exporters are losing money. Exports may not pick up like we saw in the last two months. Last deals were signed at 24-25 rupees per kg, now mills will have to cut down on pricing," a
Mumbai-based exporter said.
Prices have now fallen sharply. Currently, ex-mill export price of raw sugar is 18 rupees per kg, and white sugar at 20.0-20.5 rupees. To bridge the gap between the global and domestic prices, the Centre is offering a total subsidy of 10.45 rupees for every kg of sugar exported.
The government has set the export target of 2019-20 at 6 mln tn, and will provide assistance even if mills export half of their allotted quota. But even with the subsidy, mills are reluctant to enter fresh deals, as the returns on exports are falling.
Over the last 15-20 days, old deals were being honoured. No new deal for sugar exports has been signed as Indian traders are reluctant to sell the commodity at a lower price, a senior official with a Mumbai-based sugar company said.
"Foreign parties are backing out now because they will have to pay more. Incoming ships are being kept in quarantine at ports as a force majeure measure to check the virus spread. Some ships are also stuck at Kandla port in Mumbai," the official said.
There is also no relief in sight, as global prices are unlikely to recover anytime soon.
Global prices of sugar have fallen due to weak crude oil prices, growing risk aversion and on expectation of a decline in demand amid outbreak of coronavirus, JM Financial said in a report.
Consumption has taken a hit due to a sharp decline in people going out to eat and drink, and difficulties faced in operating normal supply chain in countries that have been badly affected by coronavirus such as China, Germany, France, Italy, South Korea, Poland, Spain, Austria, Netherlands and Lebanon, London-based trader Czarnikow said.
Even though global prices showed some recovery and touched a week's high on Tuesday, exports are unlikely to get a boost in near term due to the nationwide lockdown imposed for three weeks. Prices are also unlikely to sustain at higher levels, as the sharp drop in global crude oil prices has made sugar more attractive for mills in Brazil compared to ethanol.
"Availability of sugar in the world will be much more once Brazil comes into the market, so global deficit will be wiped out. Prices will remain around 12 cents (per pound)... ," Managing Director of National Federation of Cooperative Sugar Factories Prakash Naiknaware said.
Brazil is likely to increase sugar production to 34 mln tn in 2020-21 (Apr-Mar), against 26.5 mln tn this season, a market source said. The country is likely to export 29 mln tn sugar compared with 18 mln tn this year.
However, a group of industry officials are still hopeful of exports touching 5 mln tn as India still has time till Sep 30 to sell their sugar to the world, and due to the devaluation of the rupee. The Indian currency had slipped to a record-low of 76.24 a dollar on Tuesday.
It's only a matter of a few months, and we will get to know how things unfold for exports.
The positive pick is that shipping out even 4.0-4.5 mln tn would bring some relief to the domestic industry as India is sitting on a record-high carryover stock of 14.58 mln tn. The country's annual consumption is 26 mln tn and the expected sugar production this season is 26.5 mln tn. This would thus take the stocks-to-use to over 41 mln tn, which would much higher than what is required. US$1 = 75.88 rupees