Piles of refined white sugar crystals. (Photographer: Vincent Mundy/Bloomberg)

Indian Exports Threaten White Sugar Premium as Crops Recover

(Bloomberg) -- India might soon become even more important to the world’s sugar traders.

The world’s second-biggest producer is threatening to resume exports as output recovers. The sales by India, which produces mostly white sugar, could further weigh on the premium that white sugar commands over raw.

The premium has halved from a peak last year and is now below a level that many refiners globally need to turn a profit. The gap narrowed as the European Union removed output curbs, flooding the market with refined sugar, which accounts for most of the expected surplus this season and the next. The glut has also seen sugar futures slide about 35 percent in the past year.

“If you get through the summer, the monsoon is good out there and the market expects a significant export program out of India next year -- which is very likely -- that would be the nail in the coffin of anyone who wants to see the white premium rally,” said Philip Ryan, sugar trading product line director at Bunge Ltd., one of the world’s top crop merchants.

India has been absent from the world market since 2015-16 after an El Nino-induced drought slashed its crop. With output recovering, millers want the government to scrap an export duty so they can ship at least 1 million metric tons in 2017-18 so they don’t start next season with too much inventory, said Abinash Verma, director general of the Indian Sugar Mills Association.

“Local prices are under pressure on higher output prospects,” Veeresh Hiremath, head of research at Hyderabad-based Karvy Comtrade Ltd., said by phone on Wednesday. “In order to support prices, the government needs to abolish the export duty.”

India doubled import levies on sugar to 100 percent on Tuesday. Benchmark Indian sugar prices fell for an 11th straight month in January.

Better Crop

Indian output this season is turning out better than thought amid higher yields in some states, Verma said in an interview in Dubai. ISMA expects a crop of 26.1 million tons, but Olam International Ltd. says the figure could be bigger and trader ED&F Man Holdings Ltd. has raised its forecast to 27 million tons.

Good rains and reservoir levels mean next season’s production could be even bigger, leaving a domestic surplus, Verma said.

“If next year turns out to be a very big crop, we don’t want to start with too big a surplus because exporting a huge surplus would be too big of a challenge,” he said.

While India should have excess supplies to export this season, it will depend on government measures given low world market prices, said Kona Haque, head of research at ED&F Man. Also, there may be less reason to help millers export because the country started the season with low stockpiles. While inventories will rise, they won’t be much more significant than in previous years, said Chris Thompson, a senior vice president at Olam, which owns mills in India.

The white sugar premium is now less than $60 a ton, down from a high of $115 last year. A good rainy season in India could increase output and bring even more pain.

“You could argue that the market could trade a relatively low white premium if you get a decent monsoon,” Bunge’s Ryan said.

©2018 Bloomberg L.P.

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