New Delhi, The sugar industry wants the Centre to allow exports over the next four-five months, when peak crushing for the new season starting October takes place.

This, according to it, is necessary on two counts.

First, mills would require substantial cash flows during the time when payments are to be made to growers against cane purchases.

In the current high interest rate regime, it makes sense to minimise dependence on borrowed working capital and generate sufficient internal liquidity, which is possible only with reasonable realisations from sugar.

The need for a better cash position would be even more for mills in Uttar Pradesh in the context of Assembly elections early next year.

The State Government under Ms Mayawati is likely to announce a significant hike in cane prices with an eye on farmer votes. But mills can obviously pay at those levels only if domestic sugar prices are allowed to rise – for which exports are a necessity.

Secondly, the current high global prices are unlikely to sustain after around March, by which time the next crop in Brazil and Thailand would start arriving. In fact, this is apparent from the futures price that suggest a weak trend in the months ahead.

“We are staring at a high sugar production year and require adequate cash flows to start crushing,” said Mr Abinash Verma, Director-General, Indian Sugar Mills Association (ISMA). “We want policy initiatives to help us dispose surplus sugar in the international market,” he said, adding that the current availability situation is more than comfortable. ISMA estimates opening stocks for the new crushing season 2011-12 at 5.8 million tonnes (mt). Production in 2011-12 is estimated to grow by 7.4 per cent to 26 mt, while consumption is seen rising six per cent.

“Managing surplus is important. Otherwise, domestic prices can reach abysmally low levels. It is right time that another half-a-million tonne is allowed to export so that farmers can be supported well,” said Mr Sanjay Taparia, Chief Financial Officer, Simbhaoli Sugars Ltd.

For the current 2010-11 season (October-September), the Centre has permitted 1.5 mt for exports under the open general licence.

Besides, another 1.1 million or so have been allowed as re-export obligations against advance licences issued to mills in the past.

Allowing export of surplus sugar would also help the industry reduce inventories. ISMA's estimates an inventory of 9.8 mt by September 2012.

Global sugar prices are currently ruling at a high and futures prices indicate a weakening trend in the early part of 2012.

White sugar futures in London for October 2011 contract closed at $773.7 a tonne, while that of December 2011 were down at $732.6.

The succeeding contracts for March 2012 and May 2012 were lower at $710.5 and $698 a tonne, respectively.

Similarly, the raw sugar contracts in New York for October 2011 delivery settled at 29.57 cents per pound on Monday.

Succeeding contracts were trading lower at 28.18 cents per pound for March 2012 and 26.83 cents per pound for May 2012.

source: thehindubusinessline

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