Mumbai: Sugar millers are cancelling import contracts due to a drop in domestic prices and are unlikely to sign new deals on expectations of a surge in local output, a top industry official told Reuters.

The contracts had been signed late last year and early this year when domestic sugar prices rose to a record and the production outlook was lower. Since then the price has fallen by a third and the output estimate has risen by about the same.

“I believe there are cancellations happening because of lower price in domestic market," Vivek Saraogi, president of the Indian Sugar Mills Association (ISMA), told Reuters in an interview on Wednesday.

“Doesn’t look like anybody will sign more import deals. Logically it doesn’t follow...there is no need for imports."

The world’s biggest consumer is likely to produce 24-25 million tonnes in 2010-11, higher than the local demand of 23 million tonnes, he said.

India is likely to produce 18.7 million tonnes of sugar in 2009-10, according to ISMA, significantly higher than its initial estimates of 14-15 million tonnes, reducing the country’s overseas purchases.

According to industry estimates the south Asian country signed import deals for nearly 5 million tonnes in 2009-10, helping New York raw sugar futures rise to their highest in nearly three decades.

In Maharashtra, the top sugar producing state, spot prices have fallen to Rs2,600 ($55.3) per 100 kg from the record Rs3,972.30 on 7 Jan, forcing millers to ask the government to impose an import duty on the sweetener.

Import duty

Last year government permitted duty-free sugar imports and set limits on stocks as output fell and prices soared.

India’s Mawana Sugars earlier this week said it has cancelled a contract to import 30,000 tonnes of raw sugar.

However, Balrampur Chini Mills hasn’t cancelled any import contract, Saraogi, who is also managing director of the company, said.

Saraogi said the government will certainly impose duty on white sugar imports before the beginning of new crushing season in October.

Along with the duty, the industry is also pitching for the decontrol of the sector, which is tightly regulated by the government.

Mills are required to provide certain amount of total output to government at lower price for public distribution system.

Besides, government decides when mills can sell their produce in the open market and how much would be the quantity.

“I’m pretty hopeful government can do something in next 6 month," he said.

Sugar prices in domestic market are likely to remain steady in short term, Saraogi said.

Monsoon rains are helpful for the cane crop, but assessing it exact impact will be difficult at this stage.

India’s annual monsoon, crucial for a rebound in farm output after last year’s drought, has rapidly advanced to cover the entire country, boosting crop sowing and likely tempering food price inflation.