HYDERABAD: The Central Government’s recent move of permitting raw sugar import of 0.3 million ton (MT) at a concessional duty of 25% to check the rise in domestic sugar prices ahead of the forthcoming festive season is unlikely to have any significant impact on sugar prices or profitability of the sugar mills, said ratings agency ICRABSE 0.93 %.
Through a notification issued in August 2017, the government also imposed a stock limit on sugar mills for September and October 2017 to keep prices in check during the festive season. Under these limits, a mill cannot hold more than 21% and 8% of its total sugar availability for the entire 2016-17 marketing year at the end of September 2017 and October 2017, respectively.
According to Sabyasachi Majumdar, senior vice-president and group head, ICRA Ratings, "This move (import of raw sugar) could supplement sugar supplies in the sugar deficit Southern and Western states and also benefit consumers from possible price shocks in the festive season. However, the small quantum of additional supplies, it is unlikely to have any significant negative impact on the prices or profitability of sugar mills in the near-term".
He explains that the closing stocks for current season are estimated to be around 4.7 MT including the 0.3 MT of imported sugar, which would just be sufficient to meet the requirement of around two months of domestic consumption.
"Also, this is still lower than the normative stock level of three months (around 6 MT) and also previous year’s closing stock level of 7.8 MT," he said.
The government had earlier announced a hike in the import duty during July 2017 from 40% to 50% in order to curb dumping of sugar in India as international prices fell.
"Currently, global raw sugar prices are around 14 cents/lb. At the current prices, the total conversion cost into refined sugar is likely to be around Rs 31,000/MT. Thus, the importers are likely to benefit around Rs 5,000-6,000/MT while considering the current domestic sugar price at Rs 37,000/MT. While the quantum of imports is low, it would be a positive for mills based in the West and the South, which are currently under profitability pressure due to low cane availability," said Majumdar.