Sugar Must Drop for Indian Imports to Become Viable

By Thomas Kutty Abraham

July 13 (Bloomberg) -- Global sugar prices must decline at least 13 percent for mills in India’s biggest producing state to make money on imports of the commodity, a producers’ group said.

Raw sugar traded in New York must drop to 15 cents a pound or domestic prices should rise 14 percent to 25,000 rupees ($506) a metric ton for imports to be viable, said Prakash Naiknavare, managing director of the Maharashtra State Cooperative Sugar Factories Federation Ltd.

A slowdown in purchases by India may cool a rally that’s made raw sugar the second best-performing commodity in the UBS Bloomberg CMCI Index in the past 12 months. Prices have gained 46 percent this year on forecasts for a global deficit, driven mainly by the drop in India’s production.

“There’s no point in importing at the current prices as it will be a loss-making proposition,” Naiknavare said in a phone interview in Mumbai. “I don’t see any reason for global prices to be where they are. Brazil and Thailand have bumper output.”

Raw-sugar for October delivery fell as much as 0.7 percent to 17.15 cents a pound in after-hours trading in New York, and white sugar for October delivery declined as much as 0.5 percent to $463.20 a ton in London.

India, the word’s biggest consumer, became a net buyer of sugar for the first time since the 2005-06 season as production is forecast to slump 44 percent to 14.7 million tons in the year ending Sept. 30. Output declined for two consecutive years from a peak in 2006-07 after growers moved to grains and oilseeds.

In comparison, Thailand, the world’s second-largest sugar supplier, expects to raise output as higher prices and adequate rain increase plantings. Production in Brazil’s Center South, the world’s biggest-producing region, has jumped 43 percent to 6.75 million tons this year through June 16.

Shortfall

Mills in Maharashtra require at least 1 million tons of raw sugar in the year starting Oct. 1 to fill a production gap, said Naiknavare, whose group of 190 mills account for a third of the country’s total output.

The government may extend a window for duty-free imports of raw sugar beyond Aug. 1, a government official said on July 10, asking not to be identified as the information is not public. The measure aimed at bolstering supplies will be considered by the Cabinet in 15 days, he said.

Domestic prices may climb starting next month with demand rising ahead of major Hindu festivals, Naiknavare said.

Prices at Vashi, India’s biggest wholesale market for the commodity, fell 0.4 percent to 2,400.20 rupees per 100 kilograms today. Before today’s decline, prices have gained 57 percent in the past year, reaching a three-year high in April.

India’s output may total 17-17.5 million tons next season and any deficit in the monsoon rains may pare harvests further, Naiknavare said.

Rains were 50 percent below normal in the northwest India from June 1 to July 8, the India Meteorological Department said last week. The region includes Uttar Pradesh, the second-biggest grower of sugar cane.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.