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7th October, 2010

SUGAR…
“The wheel that squeaks the loudest is the one that gets the grease
-Josh Billings”

Presented by: Subhranil Dey

9. World India 9 11 11 11 6 6 7 7 7 Business opportunity . 3.Ethanol Blended Petrol (EBP) Programme De-regulation of Sugar Industry Recent developments Conclusion Graphics in report ￿ Sugar cycle ￿ Snapshot of Indian sugar industry ￿ Year-on-year percentage change in sugar production ￿ Comparison of fourth advance estimate of sugarcane production ￿ Rainfall map on sugar producing regions ￿ Comparison on price movement (Pre & post ban period) ￿ International price movement ￿ Seasonality index ￿ World sugar balance ￿ Cane & sugar prices in India ￿ Fuel ethanol production in Asia . Brazil 5. India 3 3 4 4 b. 2.INTERNATIONAL SUGAR ORGANIZATION a. 10. 12. 4. Powering up supply & re-affirming exports potential –India Price Movement-comparison of pre and post ban period Seasonality of sugar prices in India International price movement Highlights of quarterly market outlook August 2010 . 8. 11.CONTENT 1. 6. 13. Concept of sugar cycle India's sugar season 2010-11 –A snap shot Cane pricing Production scenario a. 7. b.

This prompts the farmers to switch over to other crops resulting in lower cane production.5-23 million tonnes. Source: USDA.5 million tonnes. The opening stock of sugar on October 1. FAS.2 million tonnes on October 1. will be 5.Adding every grain of sugar. 2010. All these leads to higher sugar prices and the cycle turns around. it follows a 3-4 years cycle with a bumper harvest resulting in higher inventory levels. 2009. sweetens the dish a bit more. But.8 million tonnes as against 3. Going around the downtrend in the sugar cycle starts with increased availability of sugars. Domestic demand of sugar is about 22. PSD database 3 . decline in sugar prices. SNAPSHOT India's sugar production in 2010-11 expected to rise to 25. every piece of sugar cane grass land adding makes the price bitter… Starting with the sugar cycle.

￿ This year projected demand to be around 21.3 million tonne. ￿ Ensured supplies to around 27. Source: SMC Research & Reuters As per the latest sugar balance sheet prepared by the Indian Sugar Mills Association (ISMA): ￿ Production in 2009-10 crop season that will end in September 30.319.00 RAIN GOD's BLESSING Weather conditions in Brazil and India are a factor behind the price increase in recent weeks.60/tonne from INR811.3 million tonne of imports (both raws and refined) and ￿ Opening stocks of 3. the minimum price has been set higher at INR 1.077. For 2010/11.00 2500.298.Cane Pricing After a two-year freeze.00 3500.12/tonne.00 0. Two consecutive years of below-average production drew down Indian stocks and forced the country to become a significant net importer in the 2008/09 and 2009/10 marketing years.00 3000. that was increased further to INR1.80/tonne in the previous two seasons. which put stress on the world supply and demand balance and pushed up prices in 2009/10.2 million tonnes.8 million tonne ￿ Added to 5.47) per tonne.00 500.00 2000. Last December. is projected to be around 18.00 1500. COMPARISON OF FOURTH ADVANCE ESTIMATE FOR SUGARCANE PRODUCTION Lakh tonnes 4000.00 1998-99 1999-2000 2000-2001 2001-02 2002-03 2003-04 2004-05 2005-06 2007-08 4th Final Targets Advance Estimate estimate 2008-09 4th Advance estimate 2009-10 Source: Agricultural Statistics Division 4 . 1000.40 (USD1=INR 46.4 million tonne. India in June 2009 raised the MSP by a third to INR1.

8 million tonnes.4 million tonnes crushed last year. India''s leading sugar producing state Maharashtra is expected to produce a record 9. in 2010/11 Brazil's sugar production is expected to grow to 39. 5 .374 million tonnes. ￿ Total cane area = 10. Punjab. considering the stock figures along with the production.18 million tonnes in the review period. KARNATAKA ￿ The area under cane has gone up by 125 per cent as against the normal planting of 315. The estimate of 6. Tamil Nadu and others. may rise to 6. raw value. USDA PROJECTIONS The US Department of Agriculture (USDA) has pegged India's sugar production at 23. The state government had initially forecast output of 6.79 per cent as against 10.22 lakh hectares ￿ Average yield of 81 tonnes/ hectare ￿ Production = 827.800 a tonne.October/September Year Source: International Sugar Organizational In the overall. 29 have received over 100 per cent rainfall. which is 28 per cent more than the fair and remunerative price (FRP) announced by the Centre. Gujarat. out of the 35 districts.43 per cent in the previous year. These figures depicts that once again the sugar price may fall in stream line.6 million tonnes in the ensuing 2010-11 sugar year. ￿ The total cane crushed would touch 22.50 lt for the new season UTTAR PRADESH .585 mln tonnes as against estimated production of 39. Barring Karnataka. Sugar production in Uttar Pradesh.MAHARASHTRA . OVERVIEW FOR SEASON 2010/11 Country Brazil India Beginning stock 3747 6606 Production 39585 27445 Consumption 12670 25900 Change stock 0 600 Ending stock 3747 7206 Import 25 Export 26915 970 Total Exports 26915 945 Figures in thousand tonnes. In the last two months.36 lakh tonnes ￿ Crushing by mill = 752. Bihar. sugar output is seen to rise in almost all sugar producing states like Andhra Pradesh.8 million tonnes.2 million tonnes for the season beginning in October is still above this season's 5.5 per cent ￿ Sugar output = 86.50 lakh tonnes (lt) of sugar during the 2010-11 season starting October.8 million tonnes by September as against 15.2 million tonnes from 5. According to USDA projection. mills in southern Karnataka have already announced advance payment of `1. Maharashtra expects to produce 86. raw value . a growth of 48 per cent. Haryana. during 2009/10. against 7 million tonnes last year. the country''s second biggest sugar producing state.000 hectares as on August 9. BRAZILIAN CROP In terms of the October/September season. making an increase of over 26 percent from last year (19 million tonnes).Sugar output in India's top cane producing state of Uttar Pradesh is likely to be 9-12 percent below previous estimates after floods ravaged plantations.5 million tonnes of sugar this year. ￿ Mills in the state achieved a sugar recovery rate of 10.15 lakh tonnes ￿ Average recovery of 11. ￿ For the next sugar season commencing in October 2010.During this season the rain gods have been very kind to Maharashtra. the supply is estimated to remain more than the consumption.0-6.

In the 2008-09 season domestic sugar output fell 42 per cent to 15 million tonnes. that enabled the government to pre-empt the sugar industry's claim of about `14. The ban was imposed in May 2009.00 Post-Ban period After ban of futures trade.000 tonnes arrived at ports until November 5. are expected for the present under the re-export policy for raw sugar imports under the Advanced License Scheme (ALS). The union government has allowed duty-free import of raw sugar to tide over the domestic production shortfall. the ministry said. control Spot Prices (Muzzafarnagar) Futures (NCDEX) Source: SMC Research 6 . however.000 crore on it on account of levy price fixation. “ A Long-lasting vapor” Futures trading have always made a positive impact on price discovery.000 tonnes of lentils in the year started April 1.00 2000. Sugar producers and traders imported 2.00 3000. the sugar prices had seen some mind-boggling prices on the retail level. respectively. Around 25000 tonnes have been shipped to Sri Lanka and another 300000 tonnes are understood to be in line for export to Pakistan and Bangladesh. by the year end. causing retail sugar To the FUTURES MARKET….00 1000. There were many reasons for the upstream. passed a bill that introduced a new sugarcane price regime. ￿ The average realization was `21 a kg.00 1500. Trading in Sugar futures was introduced at NCDEX and MCX on 27th July 2004 and 18th August 2004.50lt) in addition to a normal quota of 10. 297.000 tonnes of white sugar in the 2008-2009 season to bridge a deficit & jack-down the prices.29 million tonnes of raw sugar and 225. as because sugarcane price has moved to `22-24 a kg from `15-16 last year. 2009.00 4500.4 lt lower than in last July and will include a carry-over of 2lt from the June quota besides white sugar processed out of raw's in May (1.00 500. After several months of export ban.00 0. made imports viable once again.00 3500. 2011 instead of 31st December. The exports.) to Govt. prices to more than double.15 lt.POWERING UP SUPPLY & RE-AFFIRMIMG EXPORTS POTENTIAL The Government has just reduced by nine months the time allowed for the re-export of white sugar under the ALS T4T. The price rise in domestic market. The suspension of futures trade was valid upto September 2010. Later. The deadline is now 31st March. govt. 2011. India has recommenced exports. ￿ The cost of production had been worked out to `30-31 a kg. which is 0. Of the imports.00 2500.85lt) and imported white sugar (0. In recent days. The country purchased 480. May 2009 sugar price rises by 78% (approx.50 lt for July. Pre-Ban & Post-Ban Period 5000. ￿ The food ministry had cut down the sugar quota for release in the open market to 14.00 4000.

The U.557 and 48. Australia (-325 thousand tonnes).154 million tonnes. South Africa (-275 thousand tonnes). ￿ The increase of export availability in Brazil (+925 thousand tonnes) market: ￿ Projected world production is higher than consumption.S. which could be achieved in days to come. through Oct. because of “increased tightness” in the U. the government had reduced the stockholding limit to 10 days.00 1000. Dry weather in Brazil.00 1500. In August last year.221 million tonnes higher than world consumption.S.S.00 Seasonality – Indian Scenario Analyzing the seasonal index of Indian sugar prices.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 0. raw-sugar market. in February this year. 31. which was again brought back to 15 days in May.00 2000.00 3000.00 Source: SMC Research Price Movement .75 cent higher at 26. the prices remain under the pressure till the third quarter of the year. harvesting delay in Australia and flood in Pakistan are the major price drivers and created a global supply concern. There is a new bullish target for New York sugar as an ascending channel remains intact. ￿ The 2010/11 picture contains two major elements of a surplus raw value (including 2. Department of Agriculture signaled that domestic supplies are dwindling. down 1.00 2500.00 0.00 3500. Growth rate of consumption increase by 2. cane Price Index Monthly Price Source: SMC Research & Reauters QUARTERLY MARKET OUTLOOK 2010 . 7 million tonnes. asking them to refrain from stocking sugar for more than 15 days. as the market witness a recovery because of the festive season. ￿ Global sugar consumption in 2010/11 is put at 167. ￿ Global white sugar export availability is also forecast to shrink to 18. About $3. `/Quintal 2500. Later. October 2010 to September 2011 puts world production at 170.986 million tonnes of adjustment for unknown net trade).625 is not sufficient enough to cover numerous decreases projected for nearly all other major exporters including Thailand (-475 thousand tonnes).INTERNATIONAL SUGAR ORGANIZATION HIGHLIGHTS For World ￿ The first forecast of the world sugar balance for the period from ￿ Surplus crop (if projection by ISO is validated by crop developments in the course of 2010/11) price advances are likely to be capped.00 4000.00 500.84 cents a pound amid on concern that adverse weather will curb output in Brazil and Australia by which signs of strengthening demand and supply concerns. the government had imposed the stockholding limit on bulk consumers. 3. correspondingly).673 million tonnes.375 million tonnes. 1000.00 500. ￿ Export availability exceeds import demand (50.The Big Downshift In India Domestic prices have slumped to `25 a kg from record highs of around `46 a kg in January mainly due to stockholding limit on bulk consumers.International Sugar rose to a five-month high in New York and extended gains in London after the U. will allow one extra month for sugar imports for the current fiscal year.00 1500.00 2000. The fourth quarter is a seasonal buying period. . Mexico and Swaziland (-200 thousand tonnes each).280 million tonnes from 2009/10.00 Seasonal Index v/s Monthly Price Movement 4500.27 billion valued sugarcane crop is got damaged in Pakistan due to floods and about 50% cane harvesting being lagged due to rains in Australia. ICE raw sugar futures for nearby October delivery climbed to a seven month high of 0.06%. Sugar is still climbing within a big channel with a bullish target at 30 cents. The Food Ministry has decided to relax the stockholding limit for bulk users and now they can store sugar equivalent to 90 days of their requirement.

445 million tonnes.000 40.000 9.192 20 15 10 5 0 -4. 8 .970 million tonnes.in mln tonnes.278 33. ￿ Molasses production is presently expected to rise massively in 2010/11 on the back of a forecasted 25% increase in sugar output. Source: International Sugar Organization ￿ The highest growth rate of consumption @ 4. ￿ In 2010/11.000 140.000 160.830 170. raw value 180.277 million tonnes or 4.8% of global use of sugar.52% 125.430 million tonnes or 19.171 43.000 0 -20.520 55.000 120.758 33.000 60.949 3.87% WORLD SUGAR BALANCES (October/September) 163. Sugar use in the region is forecast to grow by 1.375 in % 50 167. for India it is expected that the indicative gap between cost and realization will be the highest in history.62% 35 30 25 54.903 56.221 Production Consumption Surplus/deficit End stocks Stocks/consumption ratio in % Source: SMC Research For India ￿ India is expected to re-join the exporters' camp with estimated net- exports of 945 thousand tonnes as against estimated net-imports of 3.3 million tonnes in 2009/10. Consumption is projected to reach 31.02%.44% is projected for Indian subcontinent. ￿ India's fuel ethanol consumption is forecasted to rise to 140 million litres as against an estimated 90 million litres last year.000 80.779 158. but the ISO suggests that some of the surplus may be used for re-building the stocks depleted during the past two seasons of acute deficit. This would likely ensure India returns as the largest exporter of cane molasses in 2011. ￿ A statistical surplus is currently projected at 1.000 100.154 45 40 135. ￿ At this early stage of the season India's export availability is put at 0.000 20.

Assessing the huge market.Ethanol Blended Petrol (EBP) Programme The national demand for ethanol is 100 crore litres per year. The OMCs would also bear the cost of import/ export-fees. 9 . India has 330 distilleries which produce 4 billion litres of rectified spirit (alcohol) per year. and a representative from Oil Industry. The brief details of the proposal are: (i) Source: International Sugar Organization Fixing of an ad-hoc uniform ex-factory price throughout the country at `27/. a representative of Sugar Industry.per litre would be purely interim in nature and subject to adjustment from the final price so determined. except North. Thereafter the procurement would be done at the price approved on consideration of the recommendation of the Expert Committee. The actual transportation would be done by the sugar factories.per litre from indigenous sources only. The committee also raised the price of ethanol for blending with petrol at `27 per litre from existing `21. ascertain the availability of ethanol and recommend the blend percentage in the States and UTs up to a limit of 10%. (ii) Noting the order for constitution of Expert Committee for pricing of ethanol. Of the total distilleries.per litre for ethanol procured by Oil Marketing Companies (OMCs) from the date of communication of the order till the time price is recommended by the expert committee and a decision taken thereon by the competent authority. taxes etc. under the Chairmanship of Dr. as applicable. Chairman. with Principal Advisor (Energy). CACP. A Study: According to a 2007 report from the Institute of Defence Studies and Analyses (IDSA). J&K. The panel recommends the blend percentage up to a limit of 10 percent in the states and union territories. Saumitra Chaudhury. Joint Secretary from Ministry of Petroleum and Natural Gas.50 per litre. The committee would follow the procedure to determine the formula/ principle for pricing of ethanol. as members. (vii) Constitution of a Working Group of officers which shall apart from allocating quantities and locations amongst suppliers. Nicobar and Lakshadweep. Member Planning Commission. Joint Secretary Sugar). (iv) The procurement would be done under supply contracts with penalties on sugar industry for default in supply and on oil industry for not lifting ethanol. Andaman. (v) The suppliers would need to fulfill all contractual obligation under existing supply contracts including for extended period.8 billion litres of conventional ethanol per year sufficient to meet the 5% blending mandate. (iii) Instructing the OMCs to close all existing tenders and begin procurement of ethanol at the uniform ex-factory ad-hoc price of `27/. The Committee will submit its recommendations expeditiously. (vi) The OMCs will bear the transportation charges from the factory to the depot on the same rate at which the OMCs transport their products. The price of `27/.OTHER TOPICS RELATED TO INDUSTRY BUSINESS OPPORTUNITY . the cabinet committee on economic affairs (CCEA) cleared a thought to approve the proposal for implementation of ethanol blended petrol (EBP) programme. about 115 distilleries have the capacity to distill 1.Eastern States. 80 million litres of petrol could be saved annually in India by blending petrol with 10 percent biofuel.

Projected Benefits ￿ Enhancing benefits to the sugarcane farmers. 10 . ￿ Ensure that there is no adverse impact on oil or the sugar industry. deficit in supply in some parts of the country does not adversely affect the programme on all India basis. ￿ The proposal relating to variable percentage of blending would ensure that surplus of ethanol available in different states is adequately absorbed in the EBP Programme at the same time.

which determine the diversion of cane crop to ethanol. ￿ Global capital will flow into domestic sugar industry as it is WRAP UP The fall in international sugar prices along with improved international & domestic supply scenario following higher crop in India. The state has about 190 mills. 2010 for which the state government will stand as a guarantor for bank loans.660-2.720 ￿ M-grade at `2. The government plans to operate 163 mills in 2010-11 season. As far as the medium to long-term outlook is considered. However the ministry made it clear that the right to fix the support price of cane for farmers will definitely be with the government. Around 25000 tonnes have been shipped to Sri Lanka and another 300000 tonnes are understood to be in line for export to Pakistan and Bangladesh. mills would not need government guarantees or various packages. who account for 60% of the country's annual sugar demand of 23 million tonnes. RECENT DEVELOPMENTS ￿ After several months of export ban. mostly co-operative. the price trends in international markets would be the key determinants of future profitability with the crude oil price trends. The objectives of sugar decontrol will be served fully only if the contentious system of cane price fixation by the Centre and the states is also done away with.690(Naka delivery). Millers could not sell the entire July quota of sugar within the stipulated time owing to poor offtake from bulk consumers. 45 kg of molasses and 300 kg of bagasse (of which 210-220 kg is used to meet a mill's steam consumption requirements. expecting good premium compared to the regular quality. ￿ The govt.630 (Naka delivery) ￿ M-30 @ `2. leaving a surplus of 8090 kg). ￿ It would mean professional functioning and not having to keep sale of sugar quota released for the month of July. 11 .) ￿ S-30 grade @ `2. ￿ Also enable cane growers to plan better. ￿ Post de-control. happening in Brazil. Good quality white sugar was in demand. This announcement stabilised the price at a lower level. the government hinted at a possible decontrol of the sugar sector. cogeneration of power and bioengineering of crushed cane — bagasse — into organic fertiliser.For every tonne of cane crushed. ￿ The state of Maharashtra also plans to press into service 20 prices ￿ Decontrol may well exert a downward push on prices as a result of additional sugar mills in new season beginning from October 1. where output is set to rise. for value-added diversification into bio-fuels.630-2.650 ￿ S-grade sugar @ `2. the freedom that factories will get to offer for sale any amount of sugar that they wish to offload from their buffer stocks ￿ The industry now needs freedom. In the Vashi sugar market: (`/Qtl. At the SPOT MARKET………. mills produce roughly 100 kg of sugar.640-2. ￿ The Union Government relaxed the stockholding norms for bulk approaching the government for loan guarantees ￿ Having the market determine the price would benefit both mills consumers from 15 days to 90 days. had given an extension till August 31 to complete the SUGAR DE-CONTROL Weeks after an announcement to decontrol petrol. ￿ The Indian state of Maharashtra yesterday banned imports of and sugarcane growers ￿ After decontrol. Mills were reluctant to sell. sugar prices may feel renewed pressures. Large money flows into any deregulated sector.600-2. the sugar prices will be linked to international sugarcane from other states to tackle a 30% surplus in production. India has recommenced exports.

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