Aug 25 2009 7:42PM
(Adds analyst comment, spot price, paragraphs 5-7)
By Mayank Bhardwaj
NEW DELHI, Aug 25 (Reuters) - Shrinking cane supplies will see India's sugar stocks will drop by three-quarters from a year earlier to 2.7 million tonnes on Oct. 1, when the new season begins, a leading industry official said on Tuesday.
The government had estimated last month the stock would be 3.5-4.0 million tonnes, down from 10 million tonnes at the beginning of the season last year.
A weak monsoon would cut the cane crop, and output might not rise beyond 16 million tonnes in 2009/10 against 14.8 million tonnes in the year to September, said J.B. Patel, president of the National Federation of Cooperative Sugar Factories Ltd.
"Despite such forecasts, let me tell you that there is no need for any sort of panic as the government has been very prudent by allowing imports of both raw and white sugar," said Patel, who heads the body representing 349 of India's 600 sugar mills. The lower estimate could put greater pressure on India's dwindling sugar supply, particularly in October around Diwali, the Hindu festiva of lights, when demand normally rises.
"The latest stock figure would put further pressure on prices ahead of Diwali and also in November. In October, India needs at least 2.2 million tonnes of the sweetener," said Amol Tilak, head of research at Kotak Commodity Services.
Domestic spot prices eased 0.7 percent on Tuesday after the government imposed limits on sugar stocks that big buyers can keep. [ID:nBOM391087]
IMPORTS
India, the world's top user of sugar and the biggest producer behind Brazil, has contracted to import 4 million tonnes of raws so far in the season, pushing benchmark prices in New York to a 28-1/2-year of 23.33 cents per lb this month.
"When we have such large imports, where is the question of shortage?" Patel asked. "Before the start of the new season, about 3 million tonnes of imported sugar will arrive and that is a huge quantity," he said.
Early this month, trade sources said sugar stocks had dropped to 6 million tonnes on July 31 from 7.6 million tonnes in June.
"We have sufficient stocks to last until the new season's sugar starts coming to the market," Patel said.
The country has allowed mills to import duty-free raw sugar until March and white sugar up to November.
Patel said next year's output would have been substantially higher had monsoon rains been good.
Bumper production in the past two seasons and a freefall in prices dissuaded farmers from planting cane. And weak monsoon rains have dealt a blow to the standing cane crop.
"After all you have to realise that climate plays 75 percent role in determining the size of the crop, while policies play only 25 percent role. Climate has remained unfavourable for Indian farmers," Patel said.
A sharp drop in cane harvests has forced India to become a large importer this year after exporting a record 5 million tonnes in 2007/08.
"Sugar production will gradually improve and I believe production will be substantially higher after two years," Patel said.
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