Located in Asia, India is the biggest producer of sugar and is the second largest sugar exporter in the world. The country is known for exporting huge volumes of fine quality sugar to countries around the world and as a result the sugar millers and exporters of the country enjoy a good demand for the sweetener all-round the year.
In May, 2022, the sugar exporters of the country exported record volumes of sugar and as a result to ensure domestic availability and price stability, the Government of India for the first time in six years moved sugar from “free” to “restricted” category. With this, the government set the sugar export quota at 10 million tonnes for the current sugar season.
However, in late August, Indian sugar mills started signing contracts with trade houses for supply of around 2 million tonnes of sugar from November-February period as they were hopeful that owing to improving sugar situation, the government would remove the restrictions on sugar exports by the end of the current season.
Albeit, the government extended the sugar export quota and allowed sugar millers, suppliers and exporters to export the sweetener to the tune of 6 mt till 31st of May,2023. This raised the prices of Indian sugar in the global market and global buyers were willing to pay Rs 2,000- Rs 3,000 as premium for sugar which attracted Indian Sugar Exporters for exports.
As a result, the sugar mills who already signed deals with trade houses prior to GOI’s decision began defaulting and renegotiating deals with trade houses to fetch high prices on sugar exports that is currently being offered in the global markets.
Depreciation Of Rupee, Continuation Of Export Quota Are Prime Reasons Why Indian Sugar Are Fetching High Prices
As the value of Rupee fell to a record level, Indian sugar prices rose in the global markets. Further, the Government of India’s stance to continue with the export quota provided base for rising prices of sugar.
As a result, the sugar mills are defaulting on contracts signed with the trade house. The mills in the western state of Maharashtra and Karnataka signed deals for sugar at around Rs 34,000 ($420) per tonne. However, prices of Indian sugar have now soared up to Rs 37,000 per tonne forcing the mills to abandon their agreements or re-negotiate with the trade houses.
Trade Houses In A Fix
While Indian sugar millers are claiming that despite the rise in prices, Indian sugar is still cheapest in the world, trade houses are finding themselves in a fix.
As they buy sugar in bulk from mills and sell it to overseas buyers, trade houses are now feeling stuck. Unlike sugar mills, they can’t renegotiate or default deals as they have a reputation to maintain. As a result, the trade houses are staring at losses they will have to incur as it appears at present.
Sugar Mills From Uttar Pradesh Rising To The Occasion
The defaults by sugar mills in Maharashtra and Karnataka have forced the trade house to make purchases of the sweetener from the mills in Uttar Pradesh. Making use of robust returns on sugar exports, the sugar mills in Uttar Pradesh are exporting white sugar at a premium of 10% over the prevailing market price.
The GOI on 5th of November resumed sugar exports and allowed the sugar millers, sugar suppliers and sugar exporters to export the commodity but have limited the quantum of such exports to 6 mt till the end of May 2023. This have raised the prices of Indian sugar in the global markets and as a result, the mills who have signed deals with the trade houses prior to government’s decision have begun renegotiating or cancelling the deals.
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