India may miss 2019 sugar MIEQ target on sustained fall in global prices

India is all set to miss the Minimum Indicative Export Quota (MIEQ) of sugar for the season 2018-19 if contracts signed for shipment in October – December quarter any indication.

Of the 1.25 million tonnes of average MIEQ quota set for the October – December 2018 quarter, sugar factories have contracted for a mere 600,000 tonnes and exported only 246,000 tonnes so far this quarter. Interestingly, sugar mills had exported only 400,000 tonnes of 2 million tonnes of quota fixed for 2017-18, achieving thereby only 20 per cent of the set quantity and missing by 80 per cent.

Sugar factories face several headwinds for executing export orders. Apart from depreciating Indian rupee making thereby exports less remunerative, depreciation in the Brazilian Lira coupled with sustained fall in global prices made sugar shipment from India less remunerative. With the government releases subsidy amount at the end of the season, sugar mills fear blockage of working capital for the entire year on which they pay interest to lenders.

“India has exported only 246,000 tonnes so far this season. If the current trend continues, achieving 5 million tonnes of MIEQ export looks impossible,” said a senior industry official.

In the beginning of the crushing season, the apex industry body Indian Sugar Mills Association (ISMA) had forecast 4-4.5 million tonnes to meet the Asian regional deficit of 3-3.5 million tonnes, still below the 5 million tonnes target set for the current year.

India’s possible failure to achieve the MIEQ export target may not go well for industry stakeholders and policy makers due to domestic supply glut. Apart from 10 million tonnes of carry over stock from the last year, total output at 31.5 million tonnes is estimated to remain nearly 6 million tonnes higher than India’s 25.5 million tonnes annual sugar consumption. Thus, by the end of SS 2018-19 (i.e. September 2019), total excess sugar will stand at around 16 million tonnes.

“Sugar prices have fallen by over 11 per cent in the benchmarks Nybot and Liffe exchanges during the last two months. Also, the rupee appreciated and Brazilian Lira depreciated during the last two months to sugar export from Brazil more competitive. Despite these odds sugar mills are expected to start dispatches by the end of December,” said Praful Vithalani, President, All India Sugar Traders Association (AISTA).

Sugar prices in Nybot declined by 11.44 per cent to trade currently at $12.30 oz per pound. In the benchmark Liffe market, near month sugar contract was quoted $339.70 per tonne, 10.37 per cent lower than $379 per tonne traded two months ago. 

“The revised estimates are due to a decline in the sugarcane availability in Uttar Pradesh, Maharashtra and Karnataka. Assuming that the domestic sugar consumption increases by 2-3 per cent to around 25.7 million tonnes in SY2019, the surplus availability from the current season would be between 5.8 and 6.3 million tonnes,” said Sabyasachi Majumdar, Senior Vice President & Group Head, Icra Ratings.

An opening stock of around 10.5 – 11.0 million tonnes, coupled with sugar production of 31.5-32.0 million tonnes, is likely to result in an overall sugar availability of 42.0 - 42.6 million MT, resulting in significant sugar surplus in the domestic market.

The government, meanwhile, has threatened mills to speed up sugar exports to avoid actions. A notification from the Union Ministry of Food early this week warned sugar mills to deduct equivalent quantity un-exported from quarterly stock holding limit.

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