All about global sugar prices

For the first time, the global prices have been buoyant for so long. There are a number of factors that have driven the buoyancy in global sugar prices. Brazil has been facing a number of supply constraints while Thailand has been hit by natural factors. India has emerged as a key player but the bottom line is that the global sugar surplus has come down sharply in the last few months. For the first time in a long gap, India will export sugar to countries at competitive prices.  

Driving inventories lower

There are two factors that are driving sugar inventories lower in India. Firstly, there is the export thrust that has been a big source of demand for sugar in the last few years. In fact, this year India is likely to have record sugar exports without the support of central subsidies. The second is the government decision to front-end ethanol blending target dates, which has resulted in more of sugar being diverted towards the production of ethanol. Both these factors have combined to reduce sugar inventories substantially and keep sugar prices buoyant on consistent basis. 

Big export story in sugar

For the sugar year 2022 (Oct-Sep), the total production of sugar is expected at around 34.50 MT. Nearly 3.50 MT will be transferred to ethanol blending. Out of the 31 MT that is left, the estimate is that nearly 27 MT will be consumed in the year while 6 MT will be exported, leading to reduction of inventory from 8 MT to 6 MT. The exports were buoyant as India has been making up for the lower exports from Brazil and Thailand. Moreover, this year the government is not paying any subsidy for sugar in the current sugar cycle. That adds up nicely. 

The bigger story on ethanol

Much more interesting than the export story is the ethanol story. There has been a consistent increase in distillation capacity across sugar companies and that forebodes well for higher demand for ethanol blending. This year nearly 3.50 MT was moved towards ethanol blending and in the coming years you would see more diversion to ethanol blending as distillery capacity ramps up. This means that the sugar prices are likely to stay above the Rs.36/KG mark for quite some time into the future. For most sugar companies, ethanol has been a bigger contributor to the EBITDA as compared to traditional sugar and that is catalyzing a greater shift towards ethanol blending. The net result is going to be a reduction in sugar inventories   and steeper sugar prices in India.