The Hindu Business Line : New avenue opens up for importing raw sugar

Cashing in
So far, two companies have announced plans of building port-based refineries at Haldia (West Bengal) and Kakinada (Andhra Pradesh).
Refined sugar can be exported to countries such as Bangladesh, Lanka, Indonesia, Malaysia.
White sugar premiums expected to range from $80 to $120 a tonne.

New Delhi , May 5

Even as processing of imported raw sugar for the domestic market has become unviable, a new avenue of setting up coastal refineries for servicing South and South-East Asian markets is opening up.

So far, two companies - Shree Renuka Sugars Ltd and EID Parry (India) Ltd - have announced plans of building port-based refineries at Haldia (West Bengal) and Kakinada (Andhra Pradesh), respectively to import and process raw sugar for export to deficit countries such as Sri Lanka, Bangladesh, Indonesia and Malaysia.

Till recently, sugar mills were importing raw sugar entirely to feed the domestic market. With drought conditions impacting cane supplies, roughly 30 lakh tonnes (lt) of raw sugar were brought in since the 2003-04 season (October-September). But zooming global prices have shut down this option. On May 4, the July raw sugar (No. 11) contract at the New York Board of Trade (NBOT) settled at 17.05 cents a pound ($376 per tonne), compared with 8.49 cents a year ago.

At current prices (after adding freight cost of $55 a tonne from Brazil), raw sugar would land in Indian ports at $430-440 a tonne or almost Rs 20,000. If to this, one added cost of unloading and transport to factory (Rs 800), fuel (Rs 600-800) and refining losses (Rs 1,200-1,600), white sugar processed from imported raws would have to sell ex-factory at a minimum Rs 23 per kg.

`Arbitrage scope'

"There was scope for arbitrage between imported raw and domestic white sugar as long as raws ruled below 14 cents. Not any more," noted Mr. Sanjay Tapriya, Director (Finance), Simbhaoli Sugar Mills Ltd.

The same view was echoed by Mr M. Manickam, Managing Director, Sakthi Sugars Ltd, which alone imported 4.3 lt. "Our last raw sugar consignment landed in Tuticorin at $260 per tonne in June 2005. If I import now, who in India will pay me Rs 23-24 a kg?" he quipped.

The rationale for port-based refineries is, however, different. It is aimed at exploiting the huge differential between raw and white sugar prices in the world market arising from reduced `dumping' by the European Union (EU). On May 4, August 2006 London white sugar futures (No. 5) closed at $470 a tonne, a $95 premium over the corresponding No. 11 raw sugar contract.

"Till two years ago, the Europeans were supplying 4.5-6.5 million tonnes of subsidised white sugar. With that regime ending, we expect white sugar premiums to range from $80 to $120 a tonne. Since white sugar cannot be transported in bulk over long distances, there is an opportunity for us to import raw sugar from Brazil, South Africa or Australia and process it for neighbouring deficit markets, including Pakistan," said Mr P. Rama Babu, Managing Director, EID Parry. The proposed Kakinada refinery, he added, is "not meant for home consumption".

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