Sugar companies based in southern India are likely to benefit from the government’s decision to allow duty-free import of up to 5 lakh tonnes of raw sugar till June 12, as the region is reeling under its worst drought in 140 years.
The government has allowed southern ports to import up to 3 lakh tonnes of raw sugar, western ports 1.5 lakh tonnes and eastern ports 50,000 tonnes. Southern India needs about two million tonnes of sugar until next year.
“Southern companies may not be able to produce more than a million tonnes. So we will need at least a million tonnes more of imports to sustain till the next year,” M Manickam, managing director of Coimbatore-based Sakthi Sugars Ltd., told BloombergQuint over the phone.
Sugar companies in the south are left with no sugarcane, given the severe drought. This is likely to impact production.
“We are running a very tight inventory. Most of the surplus stock that you see is in Uttar Pradesh and the western region. The severity of the drought will bring down production to as low as 50-55 percent for the next year,” Manickam said.
Raw sugar futures have jumped the most in three months after the government allowed duty-free imports. However, Manickam believes the decision is not likely to impact sugar prices.
Right now we are selling sugar at about Rs 36-37 per kg. The imported sugar will probably be sold at the same price as well. This will help avoid sugar prices from going up any further.
M Manickam, Managing Director, Sakthi Sugars
Importing 5 lakh tonnes may not be sufficient to meet the overall demand in the country and more imports may be needed in the future, Manickam said.
The government is looking at it from a three-month view. They may authorise more imports going ahead.
Manickam said duty-free imports may benefit the margins of southern sugar companies in the second quarter of this financial year.
Import Call ‘Unwarranted’
With the country having a sufficient stock, the call to import more sugar seemed unwarranted, Vijay Banka, chief financial officer of Mumbai-based Dwarikesh Sugar Industries Ltd., told BloombergQuint over the phone.
There is not going to be a situation where the country will run out of sugar stock.
Vijay Banka, CFO, Dwarikesh Sugar Industries
Sentiment Dampener
Banka sees a temporary impact on the prices of sugar, but does not expect them to crash. He expects sugar production in Uttar Pradesh to surpass estimates this year.
Sugar mills have surpassed all production estimates in Uttar Pradesh. Earlier, we spoke about 7.5 million tonnes of production in Uttar Pradesh and now we are talking about 8.5 million tonnes. The prices so far are reasonable and we don’t see an alarming change going ahead.
Dwarikesh Sugar Industries has an inventory of 18.5 lakh tonnes of sugar with ongoing production and expects no impact on margins from duty-free imports.