• Sri Lanka suspended sugar imports late last month.
  • Some importers had been stockpiling sugar in case an import tax was introduced.
  • This drew down its US Dollar reserves, and the Sri Lankan Rupee weakened in tandem.

Sri Lanka Suspends Sugar Imports

  • Sri Lanka suspended sugar imports in late June.
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  • Some importers had been stockpiling sugar in case an import tax was introduced.
  • The country was therefore spending far more on importing sugar than it was making through exports (20b USD vs. 10b USD).
  • Sri Lanka’s Central Bank has had to print more Rupee to reduce the deficit, weakening its currency.
  • Suspending imports should prevent the currency from falling any further.

Sri Lankan Sugar Prices Rise with Suspension

  • Since the ban, Sri Lankan sugar prices climbed to their highest level in 2021 (126 LKR/kg).
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  • This is good news for the country’s producers but bad news for consumers.
  • The Government may therefore impose a maximum retail price at 115 LKR/kg.
  • Prices have softened over the last week on the back of this news.

How Long Might the Suspension Last?

  • We think the suspension will be in place until Sri Lanka’s US Dollar reserves improve.
  • Sri Lanka has enough sugar to satisfy two and a half months of demand (170kmt), which takes it through to the season-end.
  • However, unless the Government imposes a maximum retail price, domestic prices will continue to rise as stocks run down.

How Does the Suspension Impact the Wider Market?

  • Sri Lanka accounts for 14% of India’s white sugar exports each year.
  • So, a longer suspension could mean India’s white sugar exports slow in Q3’21.
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  • This may be one reason the V/Z spread has collapsed; Indian exporters are struggling to get hold of containers and are now unable to ship to Sri Lanka.
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