The stocks of Uttar Pradesh-based sugar companies have rallied over the past one week in anticipation of lower sugarcane procurement price this season. A good sugarcane harvest has led to expectations that sugar prices may not be sustained at higher levels even if they rise due to supply concerns in the short term. 

 

Flat sugar prices and continued rise in state-administered price for sugarcane every year have resulted in losses for sugar companies for the past few quarters. In the last two years, SAP for sugarcane has increased by 35% while sugar prices have risen by just 14%. UP-based sugar companies are, therefore, making losses at the operating level. As per ETIG estimates, sugar prices may have to rise by at least Rs 3 per kg for mills to break even. However, this appears unlikely given the surplus pr .. 

 

According to Indian Sugar Mills Association, the country's sugar production this season (October 2013 to September 2014) is expected to be 25 million tonnes compared with consumption of about 23 million tonnes, spelling the fourth consecutive season of surplus production. In addition to this, India has nearly 9 MT of closing stock of the previous season. Besides, lower international prices mean that exports are not lucrative for the companies. International sugar prices are currently hovering around the rupee-adjusted domestic prices. With higher production this season in Brazil, the world's largest sugar producer, international prices are likely to stay at the current level.