Sugar futures recovered some of the, substantial, ground lost in the last session as markets pondered an ambiguous memo on export quotas from the Indian government.
Raw sugar prices collapsed over 4% to two-week lows on Friday, as it was reported that India had announced new rules to force producers to ramp up exports.
India’s Department of Food and Public Distribution issued a circular announcing that minimum export quotas would be calculated for each mill, based on an average of the mills production over the last three years.
The department stated that these quotas, totalling 4m tonnes, would be tradable, and that they would cover the year from the beginning of next month, the start of India’s new crushing season.
Markets took this to mean that mills would be forced to export the total amount of sugar quotas allocated.
High inventories
India, the world’s second largest sugar producer and top consumer, is reported be struggling with inventories of over 10m tonnes, after years of high production and low exports
Sugar prices in India are above global levels, due to government mandated cane prices paid to growers. This leaves exports uncompetitive, and encourages stockpiling.
On Friday, sugar analysts Kingsman Platt’s maintained its forecast for Indian sugar production at 29.89m tonnes raw value, down from 30.76m tonnes raw value last season, but still representing a large surplus.
Markets have for months been eying the possibility that India’s government would take steps to draw down its inventories.
Indian raw sugar exports are currently subsidised to the tune of 4,000 rupees ($60.90) a tonne, but it is uncertain whether this subsidy will remain in place after the end of September.
Ambiguous circular
But as broker Marex Spectron pointed out on Monday, the circular was unclear as to what measures would be taken to enforce the directive, saying only that mills which did not “endeavour to undertake” these exports would be “deemed to have violated the directives of the government”.
Marex Spectron also points out the circular was not an official regulation, it was issued by a department, not a minister, and it only mentioned “indicative quotas”.
The broker reported that some Indian sources are viewing this as a merely preparatory document, leaving the key issues of subsidies for exports, and penalties for non-compliance, unresolved.
Export threat
The broker said that if this interpretation was correct, exports are “unlikely” to be as high as 4m tonnes, but warned that the threat of Indian exports “will continue to hang over the market for the foreseeable future”.
And Thomas Kujawa, co-head of softs at Sucden Financial, agreed that the picture was more complex than markets had initially thought.
“Initially the rumours were along the lines of India would ‘have to export’ 4m tonnes but it seems the government would provide no subsidies or impose not fines from their ‘memo’ to producers to start exporting aggressively”, he said.
Chinese demand falls
Meanwhile on Monday, Chinese export data for August showed a reversal in a trend of rising sugar demand.
China imported 275,703 tonnes of sugar in August, down 25% from the same period last year.
The drop reverses a trend of rising demand this year, with Chinese sugar imports for the first eight months of the year up 51% from last year, at over 3m tonnes.
But with high imports expected over September, China is still set to be the world’s biggest sugar importer next year.
New York October raw sugar was up 1.4% to 11.11 cents a pound in morning deals.
