Last week, refined sugar prices reached their highest level in almost a decade, while raw sugar is nearing its highest level in over six years. World supply is tightening, mostly because India, a major shipper, has reduced shipments after rains harmed the sugar cane harvest and as more sweetener is diverted to biofuel.
According to a Bloomberg survey of merchants and economists, India's exports are expected to nearly halve to 6 million tonnes in the fiscal year ending in September, from approximately 11 million tonnes the previous year, and could go as low as 4 million tonnes the following season. This limits supplies in a market that has already been predicted by Green Pool and Covrig Analytics to be in short supply next year. If the country exports less sweetness than projected next season, "prices will have to climb to harvest sugar from any other area of the world," said Henrique Akamine, Tropical Research Services' head of sugar and ethanol.
According to Akamine, India is accountable for 6 million tonnes in our balance sheet for international sugar trade flows in 2023-24. "Even if you subtract half of what we're expecting, the trade flow will be negative." Sugar price increases have already exacerbated the impact of inflation in the UK, with buyers paying more for baked products, sweets, and fizzy beverages. While top shipper Brazil is expecting record sugar cane production, rains have delayed harvesting, and port capacity may limit supplies to the global market as the country also harvests a record soybean crop.
Thailand, another major exporter, is also expected to fall short of expectations this year. A continuous growth in global consumption and depleting stocks have made Indian supply even more important for the global market. Prices rose to a six-year high in January on fears that India will not permit more shipments this season, demonstrating the country's importance. Prices fell after the administration hinted in March that it would approve more shipments.
The decline in Indian exports can be attributed to decreasing yield and increased usage of sugar cane for biofuel. Severe rains reduced cane yields in Maharashtra, which produces more than a third of the country's sugar. The food ministry predicts that national production would decline to 33.6 million tonnes this season, down from an earlier projection of 35.2 million tonnes and 35.9 million tonnes the previous year.
While it is too early to predict India's output for the season that begins in October, forecasts range from 32 million to 34 million tonnes, with a lesser harvest possible if El Nino delivers dry weather, dealers and analysts said. According to Rahil Shaikh, managing director of trader Meir Commodities India, 32 million tonnes of production would result in an exportable excess of 4 million to 4.5 million tonnes. Simultaneously, Prime Minister Narendra Modi is pushing an aggressive biofuel scheme in which more sugar cane will be converted to generate ethanol.
According to the government, the benefits include reduced air pollution, lower oil import bills, more utilisation of excess local produce, and increased farmer revenue. The programme will reduce the amount of cane juice used to make sugar. This season, the government intends to divert 5 million tonnes of sugar for ethanol production, up from 3.6 million tonnes last year. By 2025, the ultimate goal is to redirect 6 million tonnes of waste yearly towards fuel production.
