India set to restrict sugar exports in threat to global supply

India is expected to impose restrictions on its sugar exports after dry weather parched cane crops in the world's second-biggest grower, a move that will tighten global supplies of the sweetener.

The South Asian nation is likely to curb shipments during the new season that started Oct. 1, and a decision will be made soon, said people familiar with the matter who asked not to be identified as the talks are confidential. Quotas for some overseas sales can be issued if domestic supply improves, they said.

India recorded its weakest monsoon in five years and any drop in agricultural output will heap pressure on the government of Prime Minister Narendra Modi to control food inflation ahead elections next month and in 2024. Export curbs will squeeze the market and likely boost futures in New York and London.

A spokesperson who represents India's food and commerce ministries didn't immediately respond to a request for comment.

India introduced a quota system in 2022-23 and restricted sugar exports to about 6 million tons after late rains reduced production, compared with an unrestricted 11 million tons a year earlier.

According to a Bloomberg survey of 14 analysts, traders and millers last month, most said India may not export any sugar this season due to lower output. Two respondents said shipments could total at least 2 million tons.

Raw sugar futures surged to a 12-year high in September on concerns around tight supply, despite a bumper harvest from Brazil, the world's top producer. Some parts of India's Karnataka and Maharashtra states — key growing regions — were among the driest areas this monsoon, according to the weather office.

Output from Thailand, the world's second-largest exporter, is poised to slide by almost a fifth in the upcoming harvest because of a severe drought, according to an industry group estimate last month. The onset of El Niño this year has led to drier conditions and lower rainfall across many parts of Asia.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.