Indian sugar production concerns drive local prices to 6-year high

MUMBAI, Sept 5 (Reuters) - Sugar prices in India have jumped by more than 3% in a fortnight to their highest level in six years, traders and industry officials said, as limited rainfall in the countrys key growing regions raised production concerns for the upcoming season.

This could add to food inflation and discourage New Delhi from allowing sugar exports, supporting global prices , which are near their highest in more than a decade.

\“Sugar mills are worried that production could fall sharply in the new season because of drought. They are not willing to sell at lower price,\” said Ashok Jain, president of the Bombay Sugar Merchants Association.

Higher prices will, however, improve margins for producers such as Balrampur Chini (BACH.NS), Dwarikesh Sugar (DWAR.NS), Shree Renuka Sugars (SRES.NS) and Dalmia Bharat Sugar (DLMI.NS), helping them make payments on time to farmers, dealers said.

Sugar output could fall by 3.3% to 31.7 million metric tons in the new season starting from Oct. 1 as low rainfall hits cane yields in the western state of Maharashtra and Karnataka in southern India, which together account for more than half of total Indian output, a leading trade body estimated.

Although sugar prices rose to 37,760 rupees ($454.80) per metric ton on Tuesday, their highest since Oct. 2017. Indian prices are nearly 38% lower than the global white sugar benchmark .

The price rise will dissuade the Indian government from allowing exports in the new season, Jain said.

India allowed mills to export only 6.1 million metric tons of sugar during the current season to Sept. 30, after letting them sell a record 11.1 million metric tons last season.

New Delhi is expected to ban mills from exporting sugar in the season beginning October, halting shipments for the first time in seven years, three government sources told Reuters last month.

Sugar prices could rise further in the coming months as stocks are falling, and the peak festive season is approaching, said a Mumbai-based trader.