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Drewry Maritime Research
Maritime Research

India’s gain in sugar exports is shipping sector’s loss

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Higher exports from India and Thailand are likely to partly replace Brazilian sugar in Asia and the Middle East, which in turn will hurt tonne-mile demand in the dry bulk market.

Brazil is the world’s top sugar exporter, accounting for more than half of global sugar exports. However, the country’s exports have declined this year amid a rise in competition in the international market and a surge in oil prices. While, the rise in crude oil prices is prompting Brazilian millers to divert more sugarcane towards ethanol production, higher sugar production in India and Malaysia is increasing competition in Asia and Middle East markets.

 

Sugar exports by region, 2017

Sugar exports by region, 2017

Brazil sugar exports- '000 tonnes

Brazil sugar exports- '000 tonnes

*First three quarters

Source: Drewry Maritime Research

In the first three quarters of 2018 Brazil’s sugar export declined by 5.8 million tonnes on yearly basis, equivalent to around 160 Handysize shipments. Most of the decline was in exports to the Middle East, North Africa, Asia and the Pacific. One factor behind the decline was increased in sugar availability from Thailand and India. Rising production in both countries and growing exports have increased competition in Asian and Middle Eastern markets, which in turn has led to a sharp decline in sugar prices.

 

India is set to add to the surfeit supply

Although Indian sugar exports have increased marginally in 2018, exports could surge in 2019. India has witnessed strong sugar production for the last two years and the country is already holding large stocks of around 10 million tonnes. To deal with oversupply in the domestic economy, Indian mills have been mandated to export 5 million tonnes of sugar in 2019. To support this objective the Indian government has already scrapped export duty, doubled import duty and decided to compensate exporters for transportation expenses.

India exported just 2 million tons of sugar in 2017, so the 2019 target is ambitious. However, there are plans to export 2 million tonnes of raw sugar to China from 2019 onwards, while negotiations for increased exports to Indonesia and Malaysia are on-going.

 

Thailand’s sugar exports rising on low domestic consumption

In the first three quarters of 2018, sugar exports from Thailand-world’s second largest sugar exporter- increased by 31% on yearly basis, in part due to softening in domestic demand. Domestic demand has softened due to the government introducing a sugar tax on certain beverages in September 2017. Another hike in sugar tax rates is scheduled for October 2019 and this is expected to lead to a further decline in domestic sugar demand. Given that Thai sugar production is set to continue rising, exports are also expected to grow over the next two years.

 

Thailand sugar exports- '000 tonnes

Thailand sugar exports- '000 tonnes

* First three quarters

Source: Drewry Maritime Research

 

Regionalisation of trade to hurt tonne- mile demand

Rising exports from India and Thailand, will find markets in nearby regions- the Middle East, North Africa, Asia and the Pacific being prime destinations. Long haul shipments from countries such as Brazil will mostly likely be limited to cover regional net deficits.

 

In terms of shipping, if Brazilian sugar exports of 3 million tonnes to the Middle East, North Africa, Asia and the Pacific are displaced by Indian exports it will reduce the demand for Handysizes by about five vessels per annum. Although not huge, it is a further example of how changes in the geographical pattern of trade can have both positive and negative impacts on dry bulk shipping demand.

 

 

Industry at a glance

World Container Index

East-West composite (US$/feu)

IFO 380 Bunker Prices

Rotterdam (USD$ per tonne)

Global Port Throughput

Jan 2008 = 100

Idle Capacity

(teu)