India sugar drops as govt delays raw sugar production sops

(Reuters) – Indian sugar futures fell on Friday to their lowest level in a week on sluggish demand and as the government delayed a decision on giving financial assistance to mills for production of raw sugar.

The government was expected announces sops for raw sugar production this week, but has postponed it to Jan. 16, dealers said.

The government wants mills to produce raw sugar that can be easily sold in the world market compared to white sugar. Mills have been expecting financial assistance from the government to make exports viable as their production cost has risen after they agreed to pay farmers a higher price for cane.

“The delay is dangerous. Many mills want to produce raw sugar, but are not producing because there is no clarity on the government’s financial support,” said a Mumbai-based dealer with a global trading firm.

“If the decision gets delayed further, these mills may not produce raw sugar this season at all.”

At 0948 GMT, the key January contract was down 0.92 percent at 2,791 rupees ($44.87) per 100 kg on the National Commodity and Derivatives Exchange, after falling to 2,786 rupees earlier in the day, the lowest level since Dec. 27.

India could soon boost exports of raw sugar at the expense of top suppliers Brazil and Thailand as the government looks likely to give cash-strapped mills financial help for production so they can pay farmers.

Temperature has fallen below normal in many parts of the country, the weather department said on Friday.

Demand for sugar from bulk consumers like ice-cream and cold-drink makers usually drops during the winter.

Spot sugar was up a rupee at 2,841 rupees per 100 kg at the Kolhapur market in Maharashtra.

India started the new sugar marketing year on Oct. 1 with carry-forward stocks of 8.8 million tonnes. It is expected to produce 25 million tonnes this year against a demand of 23 million tonnes.