Indian Sugar Exports Would Hand Mills Huge Profits.

Firm international sugar prices stand to earn Indian sugar groups make "handsome profits" from a return to exports – provided the country's government allows it.

A long-expected recovery in the fortunes of Indian mills, delayed last year by volatile prices of the sweetener, is on the agenda for 2011, in part thanks to prospects for exports, Fitch Ratings said.

"Margins during 2011 could get a boost from a greater allowance of exports," the ratings agency said, flagging the premium in world prices over domestic level of about 30 rupees ($0.66) per kilogramme.

"International sugar prices are running 15%‐20% above the domestic price level, which will help the industry earn handsome profits from sugar exports."

'Increasingly precarious'

However, Fitch highlighted the widespread doubts over a decision to permit 500,000 tonnes for foreign trade, as India weighs a battle against inflation against the exploitation of a return to a sugar surplus, after two seasons of production deficit.

Last week, government plans to review the exports before a panel of ministers were revealed the day after Sharad Pawar, the Indian farm minister, confirmed that a scheme for allowing the shipments was in place.

And on Wednesday, a cabinet reshuffle stripped Mr Pawar of his powers over the sugar industry, passing them to the new food minister, Kuruppasserry Varkey Thomas.

Mr Thomas's political base in Kerala, a state known for tourism rather than sugar, is viewed as making sector's oversight even less predictable.

"The political situation on potential Indian exports seems to get no clearer, and indeed there is clearly domestic food inflation making a decision increasingly precarious," Thomas Kujawa at commodities broker Sucden Financial said.

Better times

Nonetheless, Fitch said that, even without exports, sugar groups such as Gobind Sugar Mills, Shree Renuka Sugars and Uttam Sugar Mills to enjoy a revival in prosperity, thanks to a revival in domestic cane production prompted by higher prices.

The extra cane output created by a 22% rise in acreage this season will potentially halve, to national minimums, the price that mills pay for the crop in 2010.

Furthermore, by lowering the level of capacity left idle, it will improve mills' efficiency, besides producing greater quantities of valuable byproducts such as bagasse and molasses.

The agency said that it expected "overall profitability of the sector to be better than in 2010, when mills made huge margins during the first quarter but witnessed declining margins in the subsequent quarters".

"The year 2011 will be a recovery phase for the sector."

Source : agrimoney.com