India’s planned sugar export tax of 25 percent, intended to maintain local supplies, could boost opportunities for Indian refiners who unlike mills will not be subject to the tax, enabling them to sell to places such as Myanmar and Sri Lanka.
Global sugar refining margins have fallen after the latest ICE raw sugar rally, driven by a shift of the global market into deficit. Margins could recover, however, as Indian low quality white sugar exports from mills would halt after the planned imposition of the tax, traders said.
Sugar output in India, the world’s number 2 producer behind Brazil, is expected to decline this year due to drought in major growing regions.
The rally in ICE raw sugar futures meant that white sugar futures struggled to keep up, eroding global refining, or whites-over-raws, margins, the so-called white premium.
ICE raw sugar futures hit a 2-1/2-year peak of 19.92 cents a lb on June 9.
The white premium, a measure of refining profitability, dropped below $100 per tonne as the raw sugar rally gathered momentum, after trading above $100 in recent months.
Trade sources said the white premium could rise again as Indian exports slow, tightening global availability of white sugar. That would boost margins for India’s coastal refineries, which would not pay the export tax as they are import-export businesses.
“The export duty will be applicable only for domestic output (mills). For refiners, the duty will not be applicable,” said an official at E.I.D-Parry (India), which operates a refinery on the east coast of India.
“If locally produced sugar exports halt, those markets can be catered to by refiners. Myanmar and Sri Lanka would be some destinations where refiners can raise their exports,” he said.
Myanmar is believed to be a gateway for smuggled white sugar into China, traders say.
Tom McNeill, Australia-based director of Green Pool Commodities, said, “Many in the market were expecting the export of 150-ICUMSA (low quality) white sugar from India to dry up in any case.
“So the government’s export tax just makes sure that is the case, just in case the rallying global market suddenly made it attractive. So I’d guess it’s neutral to mildly supportive to the whites premium.”
India has so far exported 1.7 million tonnes in the marketing year that began on Oct. 1.