India approves 82 cents/mt sugarcane production subsidy to support domestic prices

By Srijan Kanoi, Edited by Pankti Mehta

The Indian government, along with the Cabinet Committee on Economic Affairs headed by the Prime Minister, on Wednesday approved a production-linked sugarcane subsidy of Indian Rupees 55 (82 cents)/mt to be paid directly to farmers by mills, in order to support domestic prices amid a sugar supply glut.

Domestic prices in India on the NCDEX spot market in Kolhapur, Maharashtra, have fallen by about 25% from the beginning of the 2017-2018 (October-September) season to Indian Rupees 28,646 ($430)/mt, inclusive of GST, Wednesday.

NCDEX Kolhapur spot prices

Along with bolstering domestic prices, the subsidy will assist domestic mills in reducing the cane arrears of $2.5-$3 billion and help them achieve the export target of 2 million mt, set by the government back in March for the current 2017-2018 season, market sources said.

The production-linked subsidy is equivalent to an export subsidy of about $122/mt, with export target of 2 million mt and a sugar production estimate of 31 million mttq this season, S&P Global Platts Analytics data showed.

This would make Indian low-quality white, or LQW, sugar competitive in the region at around $300-$310/mt FOB West Coast India, with Pakistani LQW offers at around $315-320/mt FOB Karachi. Indian LQWs will also compete for homes in end destinations such as Sudan, Myanmar and Taiwan against Thai high-quality whites, or HQW, which was assessed at $330.40/mt Wednesday, S&P Global Platts data showed.

Before the subsidy announcement, Indian LQWs were uncompetitive in the region with the spread between domestic prices and the front-month London No.5 futures, the global benchmark for white sugar, at $85.20/mt Wednesday.

“With Indian closing stocks at around 8-9 million mt [for the 2017-2018 season], they needed to export and for exports, the domestic mills needed a subsidy,” a trader said.

The production-linked subsidy is not the first attempt by the government to support domestic prices. It has already scrapped the 20% duty on exports and have imposed a mill-wise Minimum Indicative Export Quota (MIEQ) for 2 million mt exports until the end of the 2017-2018 season.

Domestic sugar prices in India have been in a bear grip this year, amid an unprecedented rise in cane availability, feverish pace of crush and record agricultural yields which will result in a record production of 31 million mt this season, Platts Analytics estimated.

The last time India exported sugar was in 2015-2016 when the government awarded a production subsidy of Rupees 45/mt (70 cents/mt) of cane crushed on the condition that the industry exported about 3.2 million mt of sugar and also supply a specific quantity of ethanol for blending.

The Indian subsidy exacerbates the bearish sentiment in the global sugar market, which is already grappling with a bumper crop and increased exports from Thailand, Pakistan and the EU.

Following the announcement on Wednesday, the front-month London No.5 August (Q) future dropped to $315.97/mt during the day, down $9.43/mt from the previous settlement, to settle at $323.8/mt, down $1.6/mt on the day.

Source: Platts

Be the first to comment

Leave a Reply

Your email address will not be published.


*


This site uses Akismet to reduce spam. Learn how your comment data is processed.