India to divert 350,000 tonnes of sugar exports to local market amid shortage

Indian refiners will divert 350,000 tons of sugar originally headed offshore into the local market, people familiar with the matter said, after authorities cleared the move to ease a supply crunch.

The processors could release the stockpiles to domestic buyers within a week, said the people, who asked not to be named due to the commercial sensitivity of the information. That would be enough to meet total demand in the world’s most populous country for almost five days and would help tame prices that surged to a record high last week.

India, the world’s second-biggest sugar producer, is facing a shortage of the sweetener as it heads into the peak consumption festival season. This year’s crop has been smaller than expected due to patchy rainfall and diseases in key growing areas. Under the new rules, authorities will allow 1 million tons of duty-free imports and also let processors sell some refined sugar originally earmarked for export locally.

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The release of the stockpiles would provide near-term relief without the need for imports, said the people. While inbound shipments would still be required later, the supplies would help tame domestic prices until the arrival of sugar from Brazil, they said.

Average Indian ex-mill sugar prices peaked at 67 rupees ($0.70) a kilogram last week, according to Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories Ltd. They’ve since fallen to around 54 to 55 rupees, he said, following the August 20 announcement that duty-free imports would be allowed.

“Prices will cool down further due to timely and effective intervention by the government,” Naiknavare said. “This will give relief to consumers during festivals”Sugar demand in India typically peaks during the festival season that starts in late August and runs through January, as people consume more traditional sweets and processed foods. The country’s move to allow imports has put upward pressure on global prices, although this has eased in recent sessions on expectations it won’t need to bring in as much as anticipated.

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Duty-free sugar imports may total between 300,000 and 600,000 tons by the end of October, according to estimates from five traders, analysts and millers surveyed by Bloomberg. That’s below the 1 million-ton quota approved by the government, as the softening domestic prices reduce the incentive for millers and refiners to increase shipments.

Indian sugar refiners are allowed to import duty-free raw sugar through advance authorizations as long as it is exported after processing under tolling arrangements.