Govt doubles sugar exports; sends global prices down

New Delhi: The government has allowed another 500,000 tonnes of unrestricted sugar exports, doubling its overseas sales this year and sending international prices more than 5 percent down.

Rural Development Minister Vilasrao Deshmukh announced the decision today.

Sugar mills owners had sought government permission to export an extra 1.5 million tonnes in order to take advantage of global prices that hit two and a half month high on Monday.

India, the world’s top sugar consumer and biggest producer after Brazil, has ample stocks and looks set to produce over 24 million tonnes this year, against about 22 million tonnes of consumption.

However, the government, battling high food inflation, has been cautious about exports after a severe drought in 2009 forced it to import and sent international prices sharply higher.

It allowed 500,000 tonnes of OGL exports earlier this year.

International prices have been climbing on worries about output from Brazil, the world’s biggest exporter with overseas sales of 28 million tonnes in 2010-11

Domestic prices, however, closed up as players saw the chance to take advantage of economically attractive global levels.

“It’s a welcome move. Sugar mills can get rid of some of the surplus stocks by selling them in the international market at higher prices,” said Abinash Verma, director general of the Indian Sugar Mills Association (ISMA).

“I think by first week of July the government will issue notification (regarding additional exports) so mills can start exports as early as possible,” Verma added.

Domestic sugar prices had risen earlier in the day on expectations there would be extra exports.

The most active sugar for July delivery NSMN1 on the National Commodity and Derivatives Exchange (NCDEX) finished 1.6 percent higher at Rs 2,642 per 100 kg, after rising nearly two percent in the previous session.

“Mills were selling sugar below cost of production. Additional exports will give some support to (local) prices,” said Ashok Jain, president of the Bombay Sugar Merchants Association (BSMA).

“The exports are unlikely to create any shortage in the market. Our production is likely to be above 24 million tonnes this year and prospects are good for next year’s crop as well,” Jain said.

India has just lowered its forecast for the key monsoon rains to be just below normal but monsoon rains could still pick up after July 15, during the key planting month for rice, sugar cane and corn.

The government made no decision on whether to remove stock limits on sugar for traders, which were imposed in 2009 to tame high food prices triggered during the severe drought.

Reuters