Sugar to become costly as India set to miss its export target

India is likely to miss its target for sugar exports this year due to a late start to shipments & logistical challenges.

According to the median of seven forecasts in a Bloomberg survey of traders and economists, the world's second-largest manufacturer, which is dealing with huge stockpiles, would export nearly 20% less than the government's goal and a prediction from a leading industry association. 

The threat to supply arrives at a time when the world economy is on fire. In February, raw sugar futures reported their tenth month of rises, the longest winning streak in exchange data dating back six decades. 

With the market tightening due to lower crop yields in Thailand and the European Union, and strong demand in Asia, a setback in Indian exports could give the market a boost. Despite rising global prices, exports will fall short of expectations, according to Yatin Wadhwana, a director at commodity trading and consultancy firm Gradient Commercial Pvt. Due to a pause in government subsidies, India began shipping slower than normal, although a container shortage and the upcoming monsoon season would stymie port loadings, he added. 

The country's inventories are the product of a slew of bumper crops fueled by domestic rates that are higher than global averages. 

The government has provided a subsidy to help close the gap, but it will not be enough to meet the goal. 

According to the survey, shipments may be as low as 4.9 million tonnes in the fiscal year that ends in September. This compares to the government's goal of 6 million tonnes and the Indian Sugar Mills Association's estimate of a similar number. In 2019-20, the country exported a total of 5.95 million tonnes, a new high. Delays are being exacerbated by container scarcity and rivalry for shipping facilities from companies exporting growing quantities of rice and oilseed meal. 

According to Tom McNeill, director of Brisbane, Australia-based researcher Green Pool Commodity Specialists, most market participants predicted India to ship heavily in the first and second quarters of 2021 due to the large domestic crop being 'well telegraphed to the market.'  In a survey, he said, 'This has now led to a big disconnect in the industry — there is plenty of stock in India to be exported, but very little has come out to this point.' 

With the harvest winding down, mills won't have much time to increase raw sugar production for export. Processors can be forced to market low-quality whites in bulk rather than raws, limiting the number of potential export destinations. 

Nonetheless, some experts and industry officials predict that exports would set a new high for the second year in a row in 2020-21, owing to robust demand, higher global rates, and government subsidies, which will result in India selling 6 million tonnes by September 30. 

According to Adhir Jha, chief executive officer and managing director of Sugar Exim Corp., exporters have already contracted 2.5 million to 3 million tonnes of sugar since December for shipments by May. ‘We have enough time, and the foreign market is firming up, so there's every reason to think we'll meet our goal,’ Jha said in an interview. 

According to the Indian Sugar Mills Association, domestic production will increase by 10% to 30.2 million tonnes in 2020-21 due to abundant monsoon rains. India had 10.7 million tonnes of reserves at the start of the current season, enough to satisfy local demand for around five months.