Sri Lankan importers have temporarily stopped importing sugar after the government hiked import duty and imposed a maximum domestic retail price, which made imports uneconomical, market sources said.
The Consumer Affairs Authority (CAA) of Sri Lanka fixed the maximum retail price for white sugar at Rupee 100/kg on October 12, which is equivalent to $578.54/mt, for non-packaged and Rupee 105/kg for packaged. The maximum retail price for wholesale sugar was fixed at Rupee 92/kg.
"Before the hike in duty, the landed cost of Sugar in Sri Lanka was between Rupee 85-90/kg [after tax] so there was still margin to be made with the maximum retail price in place," a trader said.
The Sri Lankan government scrapped the special commodity levy of Sri Lankan Rupee 31/kg on sugar imports and brought it under the normal tax purview, increasing the import duty on sugar to Rupee 44.5/kg effective from October 18.
"The import tax was hiked to reduce imports and improve the balance of payments issue to support the [Sri Lankan] Rupee," a Sri Lankan trader said.
The Sri Lankan Rupee is down 12.66 % year to date at Rupee 172.6849 against the dollar on Wednesday.
The rally in sugar prices since the maximum domestic retail price was announced and the duty hike has increased the import cost to Rupee 103-107/kg, making it unfeasible to continue imports, market sources said.
Offers for Indian low quality white sugar since October 12 have increased from $315-$320/mt CFR Colombo to $345-350/mt CFR Colombo on Thursday, S&P Global Platts data showed.
Since the maximum domestic retail price was set, the prompt-month London No.5 white sugar futures has firmed by 6.65% to $387.7/mt on Wednesday.
However, some importers of white sugar into Sri Lanka are optimistic that the budget announcement on November 8 will help them by either reducing the duty or lifting the maximum retail price for sugar.
"The stop in [sugar] imports has to be short term since Sri Lanka relies almost entirely on imports and does not have a huge stock domestically," a North Asian trader said.
Sri Lanka has an estimated demand of 790,000 mt of white sugar for the 2018-19 (October-September) season, with a domestic production of 55,000 mt and expected imports of 565,000 mt, S&P Global Platts Analytics data showed.
