New Delhi, Sept 6 Indian mills are unlikely to take advantage of the sharp slide in global raw sugar prices, triggered by heavy selling and unwinding of long positions in the commodity by index funds.
On Friday, the No.11 raws contract for October at New York settled 6.7 per cent lower at 21.6 cents a pound ($476.20 a tonne), after plunging to 20.50 cents at one point. Only three days earlier, on September 1, it had hit 24.85 cents ($547.85) – the highest for a most-active contract since February 1981.
Much of this decline was due to an outcome of news that Indian mills were in no hurry to contract fresh raw imports, having already purchased two-thirds of their requirements ahead of the new crushing season starting next month.
Reports of the country’s standing cane crop benefiting from recent monsoon showers were an additional dampener for funds. These investors had built huge open interest positions in No. 11 futures while rolling their longs in anticipation of massive supply shortfalls in India.
The sudden perception that the import requirement of the world’s largest sugar consumer may turn out lower has also impacted white sugar prices. On Friday, October white futures in London ended at $537.20 a tonne, well below the record $603.60 level reached on Tuesday.
Fresh buys unlikely
Will the 3 to 4 cents drop in raw prices from the September 1 peak prompt fresh buys by Indian millers? “Unlikely. At most, we may see those who have already contracted, but have not yet priced their imports, locking themselves into the new rates. Fresh buying interest will happen only if prices go below 20 cents”, an industry source said.
At 21.6 cents a pound, the landed cost of imported raws in India would be around $526 or Rs 25,726 a tonne for September delivery, while being $10 more for later shipments. Since the recovery of whites from raws is no more than 94.5 per cent, this translates into a landed white cost of Rs 27,223 a tonne.
If to this, one adds port handling costs, transport and processing charges of Rs 2,500 in Tamil Nadu and Rs 3,500 in Uttar Pradesh, the bare ex-factory cost of the resultant white sugar would be in the region of Rs 30,000 a tonne and above. This is near about what factories are currently realising on domestic sales, but not enough to prompt additional imports.
Release order validity
“What’s the point in importing and not earning even 50 paise a kg after all the trouble?” the source pointed out. Moreover, the mills are also discouraged by recent policy measures, such as reducing the validity period of release orders on sugar processed from imported raws to just one month.
“Initially, we were told that the white sugar from imported raws would be kept outside the purview of the release mechanism (which forces mills to sell their sugar within a defined period). Then, having brought it under the release mechanism, we were asked to dispose of this sugar within three months.
And now, this validity period has been further reduced to one month from the issue of release order, that too retrospectively”, he noted, adding “at this rate, what would stop them from extending the 10 per cent levy as well to this sugar?”
Source : Business Line