India may limit sugar exports to prevent domestic price hike

India plans to restrict sugar exports for the first time in six years to prevent a surge in domestic prices and could cap this season's exports at 8 million tonnes, government and industry sources told Reuters.

An announcement could come early next month, they said.

Shares in sugar manufacturers slid on the news, with Dhampur Sugar Mills and Balrampur Chini each tumbling 5 per cent and Dwarikesh Sugar losing 6 per cent.

"Sugar output is going to be a record high, but stocks are depleting fast because of exports. Uncontrolled exports could create scarcity and local prices could spike during festive season," said a senior government official with knowledge of the matter who asked not to be identified.

Two of three sources said the government has planned a cap of 8 million while one official said the government is also exploring the option of a levy on exports to discourage overseas sales.

India's Ministry of Commerce and Industry did not immediately respond to a request for comment.

A cap of 8 million tonnes for the marketing year to end-September could result in a de facto ban for exports from May as dealers say mills have already contracted to export 7 million tonnes so far.

Based on March deals for around 1 million tonnes of exports, they estimate mills could sign contracts for another 1 million tonnes in April after global white sugar prices, jumped to a 5-year high on Thursday.

Lower output in top producer Brazil and firm oil prices which encourage mills to produce more sugarcane-based ethanol have spurred global price gains. Export curbs by India, the world's No. 2 sugar exporter, would likely further lift prices.

Earlier projections estimated domestic sugar stocks as of October 1 could fall to a five-year low of 6.8 million tonnes due to record exports, but those forecasts now look optimistic after the rise in global sugar prices.

"New Delhi is keen to start the new season with opening stock of 6 to 7 million tonnes, which is enough to fulfill December quarter demand," an industry official said.

Demand usually jumps during the December quarter due to weddings and festivals such as Diwali and Dussehra.

Any sugar exports curbs would the first since India imposed a 20 per cent tax in 2016 and would represent an about-face for a government which until last year was providing subsidies for mills that were struggling to make cane payments to farmers due to record stockpiles.

But bumper exports of more than 14 million tonnes over two years now mean that New Delhi's priorities have switched to producing enough sugar to meet local demand.

"Government policy is clear. Produce enough sugar to fulfill local demand and make as much ethanol as possible from remaining surplus sugar cane. Don't rely on exports as global prices are volatile," said a policymaker who declined to be identified.

The government is also naturally concerned about food inflation as prices of essential commodities such as edible oils and grains are rising in the wake of Russia's invasion of Ukraine, said a Mumbai-based dealer with a global trading firm.

In the past, the government was embarrassed to import sugar at higher prices after exporting record quantities, the dealer said but added he didn't think the government would be reticent about imports now if it really needed to.