India to need sugar imports mid-year but sits cosy now

India to need sugar imports mid-year but sits cosy now

New Delhi/New York: India will have to resume sugar imports by mid-year to build buffer stocks for its festival season, despite having cancelled deals this week that hammered New York prices down 7% to seven-month lows.

Imported sugar in the world’s top consumer is now cheaper than local supplies for the first time in months, but India needs imports of at least 3 million tonnes to be ready for peak festive season demand in September, analysts and officials say.

Purchases could rise even higher if next season’s crush is delayed by a quarrel between farmers and millers over cane prices, as happened this season in a key sugar region.

But India is in no hurry to import, since it is well supplied for now, with production standing at 11.5 million tonnes by the end of February, and purchases later may be more profitable.

“India may have imported a lot of sugar for now but it definitely needs more later to keep a decent buffer, especially to meet a spurt in festival demand," said Veeresh Hiremath, a senior analyst with commodity brokerage Karvy Comtrade.

Supply from local mills, which crush cane from November to March, will suffice to meet demand for a few months.

“I do not see imports in the near future. I see that happening only from May," Hiremath said.

As prices crumbled more than a third from a 29-year peak of 30.40 cents per pound reached on 1 February, Indian buyers have cancelled deals for as much as 100,000 tonnes, trade and industry sources say.

The market responded to news of the cancellations last week with an immediate slide of more than 2%.

Jonathan Kingsman, managing director of consultancy Kingsman SA, said cancellation of 100,000 tonnes of imports, particularly by small private white sugar importers, was “entirely possible", though bigger players were unlikely to default.

“The structure of the raws market has changed in the last 10 years, so that the main importers are big refineries at end-destination, and these will not default," he added.

Indian traders said many importers were facing heavy losses and some washouts would continue.

Jack Scoville, senior analyst for brokers the Price Futures Group in Chicago, said washouts may indicate India does not need any more sugar -- a “negative sign" for the market.

A passing phase

But Indian analysts called it a passing phase.

India might wait until June or July to buy sugar to build stocks, even if the London price falls to $470-$500 per tonne and the New York market to 16.5 cents per pound, said Amol Tilak, a senior analyst at Kotak Commodities in Mumbai.

“I see that happening soon, very soon," he added. “Maybe in two weeks, but they will still prefer to wait until June or July." Such a wait would allow Indian importers to space out purchases and avoid a sudden rush that drives up prices.

“I think they’ll watch the market stabilise and then come back into it. There’s no guarantee the Indians will produce what they need," said James Cordier, a senior analyst for brokers in Tampa, Florida.

Indian buyers may adopt the same strategy as Egypt’s Sugar and Integrated Industries Company, which cancelled a tender to buy 300,000 tonnes because of volatile prices.

“This is leading to an environment in which buyers keep to the sidelines expecting prices to fall further and prices weakening due to evidence of no fresh demand coming in," London-based analyst Sudakshina Unnikrishnan of Barclays Capital said in a note.

Government officials say India, which consumes about 23 million tonnes of sugar a year, should hold enough stocks to meet demand for a quarter when the new season begins on 1 October.

“If the government believes India must have stocks for 3 months, I believe we need another 4 million tonnes of imports," Hiremath said, although some traders said 3 million tonnes might be enough as India’s output would rise next year.

Cordier said market fundamentals had not changed during the savage sell-off as supplies were tight and there was latent demand from countries such as Pakistan, which tendered for 200,000 tonnes of white sugar as the market tanked.

While Indian production estimates in 2009-10 have been ratcheted higher, the country may still need to book orders of the sweetener, he added.

The Indian Sugar Mills Association has raised its output forecast by 5% and says no imports are needed, since local output of 16.8 million tonnes, initial stocks of 4.4 million, and 3 million tonnes already imported were adequate.

But C. Rangarajan, head of the prime minister’s economic advisory council, said last month the country urgently needed to import 3 million to 5 million tonnes of sugar and opening stocks were less than half of ISMA’s estimate.

However, the estimates of both millers and the government have been off the mark in the past, and traders say India’s actual output may yet against surprise the market.

India imported 2.3 million tonnes last year after production of 14.7 million missed initial output estimates of 20 million by the government and millers, helping to fuel a rally just a year after exporting 5 million tonnes in a cyclical surge in output.

Government policies in the top cane-growing state, northern Uttar Pradesh, will be a key factor in determining prices, with state assembly polls due next year and politicians competing to win farmers’s votes with tax or other concessions.

But mills can pay high rates only if sugar prices are high, said Ashwini Bansod, analyst at MF Global Commodities India.

In the key western Indian sugar market of Kolhapur, the price of actively traded S-variety sugar fell 1.4% to Rs3,076.3 per 100 kg on Thursday, down nearly a quarter from a 7 January record high of Rs3,972.3.