Indian Union Cabinet, headed by the Prime Minister, approved the minimum floor price of Rs 29/kg ($433/mt) Wednesday for domestic sugar, amid a supply glut that has left prices languishing below the production costs during the 2017-2018 (October-September) season.
Since the beginning of the season, prices on the NCDEX spot Kolhapur, Maharashtra, market have dropped 32% to as low as $381/mt May 18, a 33-month low. The prices on the NCDEX spot Kolhapur market were last lower on September 18, 2015, when the prices were $379/mt, NCDEX data showed.
Domestic prices on the NCDEX spot Kolhapur market have rallied by $51.50/mt since then to $432.50/mt Wednesday as talks of the Indian government creating a buffer stock of 3 million mt of sugar, fixing a floor price and providing interest-free loans to the mills for carrying the stock gathered pace.
In a slew of announcements Wednesday, the government approved the 3 million mt buffer stock and allocated $175 million toward interest payments for the stockpile program for 12 months.
In addition, the government directed the banking sector to sanction loans worth at least $657 million over a five-year period as well as to implement an interest subvention scheme totaling at least $199 million over a three-year period for installation and modernization of the ethanol distillery capacity owned by Indian mills.
This brought the total size of the relief package to about $1.03 billion, against current cane arrears of $3.3 billion, as estimated by Indian Sugar Millers Association, or ISMA.
The floor price of sugar was below the market expectation, with an Indian trader before the announcement saying that "the domestic sugar floor price should be around INR 30,000-33,000/mt ($441-$485/mt)."
The minimum selling price of sugar at Rs 29,000/mt is not adequate as with a Fair and Remunerative Price of sugarcane of Rs 2,900/mt and an all India average sucrose recovery of 10.8%, the FRP works out to Rs 35,000/mt, a statement released from ISMA said.
"Some of the more efficient mills in Maharashtra can still produce at Rs 26/kg, but most mills in India will still lose money at Rs 29/kg," a trader said.
Domestic prices in India are in a bear grip this season on the back of a bumper crop in India, with sugar production estimated at 31.74 million mttq for the 2017-2018 (October-September) season, up more than 56% year on year, wi
