Sugar prices which had dropped to five-year-lows in early-February have reversed their trends in the last few weeks.
Prices at Kolhapur and Muzaffarnagar, the country’s two major terminal markets, have increased by 12 per cent in the last six weeks. They are seen to trade firm in the days ahead as the current crushing season heads for closure in about a month’s time.
Industry sources attribute the rebound in sugar prices to a host of factors such as the lower than anticipated domestic output, pick up in summer demand and the Government’s move to incentivise exports of raw sugar.
Besides drought in Brazil – the largest sugar producer – and an anticipated El Nino affecting the crop in Thailand and Australia are seen supporting prices globally.
“The market sentiment has improved and there is increased buying by the trading community and even consumers,” said Abinash Verma, Director-General of the Indian Sugar Mills Association.
“The market is moving up and people are taking positions. The stock pipeline with the trade that had turned dry in the past one-and-half years is getting filled up,” he said.
The timing is important given that mills, especially in Uttar Pradesh, have piled up huge cane arrears. Improved sugar realisations will help them pay growers and incentivise them to plant cane for the next season. Cane planting in Uttar Pradesh is done during March-May. If they cut the area under sugarcane, it will impact not only the crop to be crushed next February-April, but also the subsequent “ratoon” that should be ready for harvest in November-December next year.
Praful Vithlani, owner of Jagjivan Keshavaji & Co – sugar broking house in Mumbai, said the market got a boost due to the weather conditions in Brazil and Government’s notification of subsidy for raw sugar exports. “As of today, it looks like the bullish trend is likely to be sustained,” Vithalani said confirming the renewed buying interest from the trade and stockists.
ISMA expects sugar output for the 2013-14 season to be five per cent lower than the earlier estimate of 23.8 million tonnes. Till mid-March, the production was lower by eight per cent at 19.38 million tonnes.
“The summer demand is supporting the pick-up in market,” said M G Joshi, Managing Director of the National Federation of Sugar Co-operatives. The increase in raw sugar prices globally is also aiding the trend, he said.
However, ISMA’s Verma said the price increase was still not good enough for millers to cover their costs. Sugar prices had been ruling lower in the last 12 to 14 months. Prices were down by about Rs.6000 a tonne since August last year on surplus availability as exports were not viable with the decline in global prices. However, the prices have moved up now.
In Muzaffarnagar, the prices have increased from Rs.2,950 a quintal in early February to the current level of Rs.3,307, while in Kolhapur they have increased to Rs.2,943 from Rs.2,656. However, retail prices for the consumer have not changed but may soon follow suit.