By Rajendra Jadhav and David Brough
MUMBAI/LONDON, Dec 16 (Reuters) - Indian sugar exports are likely to slow down in coming month as a 12 percent jump in local prices in a fortnight has discouraged mills from signing new export deals despite a government mandate for overseas sales.
The slowdown in exports from the world's second biggest producer will support global prices SBc1 and help Asian rivals such as Thailand and Pakistan increase their market share.
"Mills are not in the mood to commit anything for exports. Everyone is expecting the rally in local prices to continue," said a Mumbai-based dealer with a global trading firm.
The rally in local sugar prices NSMc1 has been providing mills the funds to pay cane growers, and they don't need to sell in the world market at a discount, he said.
India has been pushing mills to export sugar and use the proceeds to clear huge debts they owe farmers for sugarcane.
In September, authorities made it compulsory for sugar producers to ramp up exports to at least 4 million tonnes in the current crushing season as the country is set to produce a surplus for a sixth straight year.
The government has approved a plan to pay farmers 45 Indian rupees for every tonne of cane produced, provided mills manage to export their quota.
But now some mills are holding back from exporting.
"For 45 rupees why should I bear a loss of 250 rupees?" asked a Maharashtra-based miller, pointing to the difference between local and overseas prices.
In the current season, mills have so far signed deals to export 600,000 tonnes of sugar and out of this nearly 300,000 have already been dispatched. The remainder would be shipped out in next two-three months.
Sucden Financial Sugar, in its latest quarterly report released on Tuesday, estimated India would export around 2 million tonnes of sugar in 2015/16.
"The final amount will depend on how Indian domestic prices react compared to world prices and also on how producers will feel comfortable - or not - with the size of the 2015/16 and 2016/17 crops," Sucden said.
The first back-to-back drought in three decades is expected to slash India's production this year and there is a risk production will drop below consumption for the first time in seven years in the following 2016/17 season.
Indian mills have mostly sold white sugar in the world market as exports of raws are not viable. Only a sustained recovery in world raw sugar prices would incentivize raw sugar exports from India, several traders said.
"The comparison between the domestic market and the world market helps people to make the decision on exports," Michael Liddiard of consultancy Agrilion said.