India is expected to turn a net importer of sugar in the marketing year (MY) 2004-05 after being a net exporter since the marketing year 2000-01 as domestic prices are well above international prices.

This is despite expectations that India's sugar consumption is set to grow at a slower pace in the current MY owing to tight domestic supplies and the expected firm domestic prices.

According to the US Attache report, sugar consumption in India in MY 2004-05 may grow marginally to 20.7 million metric tonne (mmt).

Based on the figures provided by the Indian Sugar Mills' Association, consumption in MY 2002-03 and MY 2003-04 has been revised marginally lower to 19.9 mmt and 20.5 mmt, respectively.

The decline in sugar production and the subsequent decline in sugar stocks resulted in a strong recovery in prices during the current season. The current sugar prices in major markets range between $320-345 metric tonne.

Prices are expected to remain steady until the general elections in May 2004. Also, if the new government does not interfere in the market, prices may increase subsequently.

Stocks at the end of marketing year 2003-04 are estimated at 8.3 mmt, and may decline to 4.5 mmt by the end of marketing year 2004-05. These stocks are less than the desired 'normal levels', which should be equivalent to three months of consumption.

India is set to import sugar in MY 2004-05 after being a net exporter since MY 2000-01.

With domestic prices well above international sugar prices, sugar imports in 2004-05 are seen at 1.0 mmt, mostly raw sugar to be further processed into refined sugar.

Although high import tariff and non-tariff barriers may hit imports of refined sugar by traders, market sources expect some relief from the government to allow imports of raw sugar by mills.

Exports are unlikely to exceed 20,000 mt in 2004-05, mostly quota exports to the US and EU, as local prices are expected to be well above international prices.

Due to insufficient availability of sugarcane, many mills in Maharashtra and southern states are facing closure. The local industry may petition the government to allow imports of raw sugar at a concessional duty to enable the mills to utilise their production capacities.

Market sources expect some policy relief to the sugar industry, which may allow imports of raw sugar to be further processed into refined sugar, and sold in the domestic market.

For marketing year 2003-04 exports have been revised lower to 400,000 metric tonne, as export prospects have been dampened by comparatively high local prices, strengthening value of the rupee versus the dollar (Rs 45.8 in September 2003 to Rs 43.5 in April 2004), and reported increase in freight charges.

In fact, the recent upsurge in domestic prices, and the resultant differential over international prices itself, have more than offset the various export subsidies and incentives offered by the government.

Sources report that only 262,000 mt of sugar (raw value basis) contracted for exports during the current marketing year have been shipped till end February 2004.

Accounting for some additional sugar contracted for exports to be shipped during the remaining period, exports in marketing year 2003-04 are estimated to reach 400,000 mt.

Based on the reports of raw sugar being imported by a couple of south India based mills for re-exports of refined sugar, MY 2003-04 imports have been revised to 100,000.