Indian sugar surplus seen down

India's sugar surplus is likely to drop by 2 million tonnes in 2007/08 following a government decision to allow ethanol production directly from cane juice, a senior industry official said on Wednesday.
The Indian cabinet approved late on Tuesday the ethanol proposal to help sugar mills struggling with a supply glut, as the country is forecast to beat Brazil as the world's top sugar producer this year.
"Ethanol is the best chance... India may be able to reduce sugar surplus by 2 million tonnes," Prakash Naiknavare, managing director of Maharashtra State Co-operative Sugar Factories Federation Ltd, told Reuters in an interview.
The federation represents the sugar factories in the western state of Maharashtra, India's biggest sugar producer. Earlier, Indian mills were allowed to produce ethanol from molasses, a by-product in sugar manufacturing.
London-based International Sugar Organisation said in a monthly report on Monday India would have a surplus of 11.5 million tonnes, based on its record forecast of 33.15 million tonnes in the crop year that began on October 1. Brazil is expected to produce 32.38 million tonnes, it has said. India, which has traditionally been exporting white sugar, will start selling raw sugar this year to ease the downward pressure on domestic prices, he said.
Total sugar exports are likely to touch 3.5-4.0 million tonnes in 2007/08, including raw sugar sales of 2.5 million tonnes, Naiknavare said. In 2006/07, India exported about 1.6 million tonnes, all of white sugar. The Maharashtra State Co-operative expects to soon finalise a deal to export 200,000 tonnes of raw sugar, he said.
It had earlier struck a deal to export 300,000 tonnes of raw sugar to Dubai-based al-khaleej refinery and hopes to start the shipments from early November, he said. The government has also extended a freight subsidy for sugar companies by a year to April 2009 to help exports and ease the bulging stocks with mills. "I expect the domestic prices, which was looking southward, may change its direction," Naiknavare said.
Prices excluding taxes in India have tumbled nearly a third to 1,150 rupees ($29.3) per 100 kg from a two-year high of 1,700 rupees in June 2006. The slide has taken prices well below the cost of production of about 1,450 rupees. Some mills in Maharashtra began crushing cane this week, ahead of the normal start in November, because of the bumper crop expected, Naiknavare said.
"By mid of this month I think another 20-25 mills will be added... by mid-November all mills will start crushing," he said. Sugarcane is planted in June at the start of India's four-month annual monsoon rains and harvesting begins by October in the following year.