Duty-Free Imports To Help Sugar Companies In Drought-Hit South

Sugar companies based in southern India are likely to benefit from the government's decision to allow duty-free import of up to 5 lakh tonnes of raw sugar till June 12, as the region is reeling under its worst drought in 140 years.

Also Read: Government Allows Duty-Free Import Of 5 Lakh Tonnes Raw Sugar

The government has allowed southern ports to import up to 3 lakh tonnes of raw sugar, western ports 1.5 lakh tonnes and eastern ports 50,000 tonnes. Southern India needs about two million tonnes of sugar until next year.

“Southern companies may not be able to produce more than a million tonnes. So we will need at least a million tonnes more of imports to sustain till the next year,” M Manickam, managing director of Coimbatore-based Sakthi Sugars Ltd., told BloombergQuint over the phone.

Sugar companies in the south are left with no sugarcane, given the severe drought. This is likely to impact production.

“We are running a very tight inventory. Most of the surplus stock that you see is in Uttar Pradesh and the western region. The severity of the drought will bring down production to as low as 50-55 percent for the next year,” Manickam said.

Raw sugar futures have jumped the most in three months after the government allowed duty-free imports. However, Manickam believes the decision is not likely to impact sugar prices.

Also Read: Sugar Jumps Most in Three Months as India Said to Allow Imports

Importing 5 lakh tonnes may not be sufficient to meet the overall demand in the country and more imports may be needed in the future, Manickam said.

Manickam said duty-free imports may benefit the margins of southern sugar companies in the second quarter of this financial year.

Import Call ‘Unwarranted'

With the country having a sufficient stock, the call to import more sugar seemed unwarranted, Vijay Banka, chief financial officer of Mumbai-based Dwarikesh Sugar Industries Ltd., told BloombergQuint over the phone.

Sentiment Dampener

Banka sees a temporary impact on the prices of sugar, but does not expect them to crash. He expects sugar production in Uttar Pradesh to surpass estimates this year.

Dwarikesh Sugar Industries has an inventory of 18.5 lakh tonnes of sugar with ongoing production and expects no impact on margins from duty-free imports.