Rally in local sugar prices could put brakes on exports

Sweetener dearer by Rs4/kg

Karachi: Pakistan sugar exports are likely to take a hit as an eight percent jump in local prices in a fortnight could discourage mills from signing new deals despite a government mandate for overseas sales of 500,000 tons.

Price of sugar increased Rs4/kg in the wholesale market after the government allowed millers to export excess quantity last month. Sugar prices were quoted at Rs52/kg on Saturday.

"Sugar was available at Rs48/kg before the government allowed export," said Irfan Memon, a wholesaler. "The sugar millers have cut local supplies to achieve higher exports."

The government allowed sugar export in the second week of December with a subsidy at Rs13/kg. Millers are to export the allowed quantity by March 2016 in various phases.

Exports were allowed after the millers said they have carryover stock of 1.1 million tons at the start of new crushing season. The country is estimated to produce 5.7-6.2 million tons sugar by April 2016.

According to industry estimate, the country produces around one million ton surplus sugar almost every year. Local consumption for the current calendar year is estimated at 4.7 to five million tons.

Fareed Qureshi, general secretary at Karachi Retail Grocers Group said the increase in wholesale price has been passed on to consumers. "Now sugar is available at Rs55-56/kg in retail market compared to Rs52/kg in early December," Qureshi said.

International markets have also seen a rise in sugar prices in the recent days after Brazil, the largest producer of the sweetener, reported a decline in sugarcane due to climate change. India is also facing similar production issues.

Pakistan exported 524,374 tons in the first eleven months (January-November) of 2015 at an average price of $443.42/ton, according to the Pakistan Bureau of Statistics.

Dealers said everyone is expecting the rally in local prices to continue as millers are in no mood to increase local supplies.

Iskandar Khan, chairman of All Pakistan Sugar Mills Association said the recent increase in price is still not helping the millers to sell the commodity at a profit. "Cost of one kilogram sugar is almost Rs64, including sales tax. While the ex-factory price of the sweetener remained at around Rs50/kg," Khan said. “Price will increase when mills resume production, as they face pressure to pay dues to sugarcane farmers on times."

Khan said the support price of sugarcane is highest in Pakistan. "This is the main cause of high sugar prices in the country," he said. Last year the federal government fixed the support price at Rs180/40kg. The prices had been unchanged since the last two years.