Sugar As On June 12 Rises 6-12% W/W After Bailout Package

MUMBAI (Commoditiescontrol) - Sugar prices as on June 12 recorded gains of 6-12% week-on-week at major trading centers across the country after Indian government announced various measures to improve the liquidity of cash-starved mills so that they can clear part of over Rs 22,000 crore dues to cane farmers.

Highlights - Domestic

# Cabinet on June 6 approved a Rs 8,500 crore bailout package for Sugar Sector. The key highlights of the package includes

# Creation of buffer stock of 30 LMT of sugar for one year which will result in a Rs 1,175 crore burden on the Centre in form of storage cost to mills. However, based on the market price and availability of sugar, this may be reviewed by Department of Food & Public Distribution (DFPD) any time. The reimbursement under the scheme would be made on quarterly basis which would be directly credited into farmers’ account on behalf of mills against their cane price dues.
# To notify Sugar Price (Control) Order, 2018 under Essential Commodities Act, 1955 to fix minimum selling price of white/refined sugar at the mill gate below which no white/refined sugar can be sold and delivered by a sugar mill in the domestic market.

Fixation of minimum selling price of white sugar would be based on Fair Remunerative Price (FRP) of cane and minimum conversion cost of white/refined sugar. The minimum selling price of white/refined sugar shall be initially fixed at Rs.29/kg which can be revised by DFPD subsequently based on revision of FRP etc.

This will not affect availability of sugar to consumers at reasonable price and Government will put in place a mechanism to ensure that the retail prices of sugar are kept fully under control. At present, this would be done along with imposition of stock holding limits on sugar mills. The stock limit on mills will be initially imposed for the current sugar season (up to September 2018), which may be reviewed by DFPD at any time. The stock limits for the month of June are attached herewith.

# To augment capacity through up-gradation of existing distilleries attached to sugar mills by installing incineration boilers and setting up new distilleries in sugar mills; government will bear interest subvention of maximum Rs.1332 crore over a period of five years including moratorium period of one year on estimated bank loan amounting to Rs.4440 crore to be sanctioned to the sugar mills by the banks over a period of three years for which DFPD would formulate a detailed scheme in this regard. This would help diversion of sugar during surplus phase to reduce excess inventories.

# The above announcement saw an increase in ex mill prices by almost 25%. In the month of April the sugar prices in Maharashtra and Karnataka touched a low of Rs 2400 levels and now they are almost Rs 3100 levels.

# Many people are critical of the above announcement as it does not address the cane arrears issue which has touched almost 22000 crores and also the liquidation of the excessive surplus.

# Looking at the good domestic prices many mills have decided not to offer any sugar for exports and instead take benefit of good prices in the local market. The above has resulted in improvement in International prices.

As per the current international market net ex-mill realisation to mill would be Rs 21000/MT plus an estimated subsidy of Rs 6000/MT which gives them Rs 27000/MT.

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There has been an unexpected jump in prices which have been mainly on account of fixation of minimum price and monthly quota by the government. The monthly quota was fixed earlier also but it was not followed by many mills hence it did not achieve the purpose of improvement in prices. Given the quantum of cane arrears we feel that it will be difficult for many mills to follow the quota system and if such a thing happens then prices might again slip below Rs 2900 levels.

For prices to find some support, exports need to be pursued by the millers actively and that can happen only if the domestic prices fall back to earlier level or International prices go up for Indian millers to make it attractive.

(By Commoditiescontrol Bureau; +91-22-40015533)