Sugar prices reached a four-month high on Tuesday after India, the world's largest consumer, lifted duties on the import of raw sugar to bridge a shortfall in domestic production.
The move was also designed to lower domestic prices ahead of a general election expected in April.
Kamal Nath, the minister of commerce, said India would allow duty-free imports for local sale, scrapping a 60 per cent duty on condition that a similar quantity of refined sugar was exported from the country within two years.
Toby Cohen, director at sugar merchant Czarnikow in London, said India was likely to import about 1m-2m tonnes of raw sugar in the season ending in October. "This brings fresh demand into the global market after India was an exporter of 5m tonnes last season."
The drop in India's output, together with lower production in Pakistan, Iran and the European Union, will push the world's sugar market into deficit for the first time in three years. Pakistan said it would also tap the international sugar market.
In New York, benchmark ICE March raw sugar futures rose to an intraday high of 13.07 cents a pound, the highest level since October. In London, Liffe March white sugar futures rose to a 4½-month high of $385.5 a tonne. Both contracts later pared gains as the price spike led to producer selling.
Swings in Indian sugar output, which move the country back and forth from exporter to importer, are a critical factor in sugar prices. Traders forecast that the country's output will drop about 30 per cent to 18m tonnes in the 2008-09 season, well below the country's consumption of about 22m tonnes a year.
Sugar prices in India have risen about 30 per cent in the past year. Food prices and inflation are a key issue in the Indian election alongside national security.
Aslam Khan, a sugar mill owner in Uttar Pradesh, said: "By allowing sugar in [to the country] the government is signalling to us that it doesn't want prices to move up too much."
Copyright: The Financial Times Limited 2009
