London/New Delhi, April 21 - The removal of India's white sugar import duty can push sugar prices higher and contribute to increased plantings, but analysts do not anticipate a big global surplus of the sweetener soon.
Last week, India's Election Commission approved a proposal by the government to allow tax-free imports of white sugar, after the cabinet decided to remove a 60-percent import tax on up to 1 million tonnes of refined sugar for 4 months.
"I would think that sugar in New York still has a chance for the 15.00 cents area. India has lifted tariffs on white sugar, so that is where the business will be," said Jack Scoville, vice-president of the Price Group in Chicago.
He added, "I am sure these better prices will increase plantings around the world."
Benchmark ICE raw sugar futures edged down on Monday, standing at 12.98 cents per lb, off 0.21 cent or 1.6 percent, compared with 11.81 cents per lb at the end of 2008.
"The overall supply/demand outlook suggests that there is further upside to sugar prices in 2009," said Toby Cohen, director of London-based sugar and ethanol brokerage Czarnikow.
"India's swing from exporter to importer will enable Brazil to increase exports during 2009," he added. "Lower freight rates are also positive for Brazilian exports."
Julio Maria Borges of Job Economia in Brazil said, "Prices are unlikely to rise to levels above the 14-15 cents a lb range, unless Brazil's real (currency) appreciates significantly."
In its first response to the measure, India has contracted to buy 20,000 tonnes of white sugar, authorities said on Monday.
The move to lift the duty was a response to disappointing sugar output and high sugar prices in India, the world's second biggest producer after Brazil, and biggest consumer. India has swung to being a net importer of sugar from a net exporter.
Analysts said the removal of the duty will increase Indian import demand for sugar, much of which will likely come from Brazil and Thailand, and could drive futures prices higher.
Higher returns would potentially lead farmers to increase sugar plantings.
Indian mills had contracted to buy around 1.5 million tonnes of raw sugar, and India was likely to import 3 million tonnes of duty-free raw sugar in 2008/09, authorities said.
NO SURPLUS IN SIGHT YET
A rise in plantings in response to higher sugar prices, will lead to higher production in India but is no guarantee India will shift back to net exporter.
"Given underlying demand growth, the export hurdle (in India) is constantly being raised," Cohen said.
Job Economia's Borges said, "India's expansion (of output) is widely expected already. But I think they won't become exporters due to their high domestic demand. They will continue as importers but not with the same hunger as right now."
Supply shortfalls elsewhere will prevent the emergence of a global sugar surplus any time soon, traders and analysts said.
The International Sugar Organization has raised its estimate of the global sugar deficit in 2008/09 to 4.3 million tonnes from a previous forecast deficit of 3.6 million.
"A global surplus will take time as the situation has not improved in Australia," said S.L. Jain, director-general of the Indian Sugar Mills Association, in a reference to flooding in the world's number 3 sugar exporter.
Referring to the number 2 exporter Thailand, Jain added, "The situation has not improved. They do not have much surplus."
Thai sugar premiums have surged to their highest in 6 months on expectations Thailand will win some of the Indian business.
"You can hardly expect any exports from China," Jain said. "Chinese costs of production are much higher (than other exporters) and they do not have so much (available) land."