Olam Sees Potential for Indian Sugar Exports on Rupee to Surplus

(Bloomberg) – Sugar millers in India, the world’s second-biggest producer of the sweetener, may seek to export product because of a record low for the Indian rupee and a fourth year of domestic surpluses, Olam International Ltd. (OLAM) said.

Indian exports will probably be 500,000 to 1.5 million metric tons in the 2013-14 season, Manish Gupta, head of sugar trading at Olam India, said in an interview last week. Another one million tons will be shipped from refineries that import raw sweetener to re-export it as refined sweetener, he said.

The Indian rupee’s 12 percent retreat in the past six months to a record low on Aug. 6 increased revenue from dollar-denominated sugar sales. A lower rupee means prices in India are about equal to futures traded in London, boosting prospects for overseas sales. Raw sugar traded in New York gained for the past four weeks as frost last month may reduce the crop in Brazil, the world’s largest producer.

“If New York rallies for some reason, on account of Brazilian rains or the frost issue and the rupee depreciates, it will give India an opportunity to export,” Gupta said.

White sugar futures on the National Commodity & Derivatives Exchange Ltd. in Mumbai were 3,015 rupees for 100 kilograms ($495.90 a ton) today. Refined sugar futures traded on NSYE Liffe settled at $497.90 a ton last week.

Accurate Forecast

Sugar production in the South Asian nation will be 1 million tons higher than consumption in the season that starts Oct. 1, a fourth year of surplus, Ruchi Ahuja, an analyst at Olam in India, said in the same phone interview.

India will produce 24 million tons of sugar next season, down from 25 million tons in 2012-13, considering normal monsoon rains, according to Ahuja, who correctly forecast the size of the current crop in a Sept. 4 interview. A lack of water, particularly in the country’s southern states, resulted in a “small” change in acreage, she said. Production will drop the most in Maharashtra state, by 700,000 tons, Olam estimates. Local stockpiles are 7 million to 8 million tons.

An end to state curbs on the amount of sugar that millers can sell may help send domestic prices lower when the harvest starts, Gupta said. That may encourage shipments should international prices be higher, he said.

“There’s New York, there’s the rupee, and there’s the fact that we may see some reduction on the price here because of the pressure,” Gupta said. “All three put together will possibly in some way create a situation of exports.” One reason why it may not happen is if international prices fall below local ones, he said.

Sugar futures traded in New York are heading for a third year of declines, the longest slump since 1992, as supplies outpace demand. Production will be a record 10 million tons bigger than consumption in 2012-13, estimates the International Sugar Organization based in London.

Rupee Plunge

India is stepping up efforts to stem the rupee’s plunge. The Reserve Bank of India said Aug. 8 it will sell 220 billion rupees of cash management bills weekly. Last month it restricted banks’ access to cash, curbed trading in currency derivatives and raised interest rates. It also asked foreign investors to prove they’re not speculating on the currency.

Cane in India is still more competitive than other crops and an end to state curbs on millers will attract more investment to India, according to Gupta. While removing sales curbs may bring some price pressure for now, in the longer run the government’s push to link sugar and cane prices will allow India to respond quicker to market moves, he said. Sugar is traded freely while cane prices are set by the state.

“In a year where there’s a decontrol environment in which anybody can sell any quantity, we might see some more pressure, but I think fundamentals will drive the price rather than this decision,” Gupta said. “The state governments are already working very hard to put legislation through before this season, probably, which will link the cane price to the sugar price.”