Raw Sugar Imports May Not Affect Sugar Prices Negatively in Near Term ICRA Says
COIMBATORE: The recent decision to allow duty free raw sugar imports of 0.5 million tonne is unlikely to have any significant negative impact on the prices or profitability of sugar mills in the near-term, ratings agency ICRA has said.
"However, should further import of duty free sugar be permitted, pressures on the stock position and the sugar prices cannot be ruled out in the forthcoming sugar year (2017-18)," it said.
"While raw sugar imports are unlikely to negatively impact domestic sugar prices, this move may dampen prospects of a further price rise, first by increasing the sugar supply in the near term," said Sabyasachi Majumdar, senior vice-president and group head, ICRA Ratings.
"This apart, pressures on stocks and prices from any further allowance of duty free import cannot be ruled out," he said.
"Including the 0.5 million tonnes of imported sugar, the closing stock for the current season is estimated to be around 4.5-5 million tonne, which would be sufficient to meet the requirement of around two months of domestic consumption," ICRA estimated.
"This is still lower than the normal stock level of three months (around 6 million MT) and also the previous year's closing stock level of 7.7 million tonnes," the agency pointed out.
Raw sugar imports will be allowed under a tariff rate quota and the Directorate General of Foreign Trade will issue a notice declaring the quota for each importer.
The import will be done with zonal quantity restrictions and is open only for millers and refiners having own refining capacity.
"Currently, global raw sugar prices are around 16 cents/lb (pound). At current prices, the total conversion cost into refined sugar is likely to be around Rs 32,000 per tonne. Thus, importers are likely to benefit around Rs 4,000 - Rs 50,00 per tonne considering the current domestic sugar price at Rs 36,000 - Rs 37,000 per tonne," Majumdar said.
"While the quantum of imports is low, it would be a positive for mills based in the west and the south, which are currently facing profitability pressures due to low cane availability," he stated.