In a surprising trend, sugar prices in December jumped 13% following reports of a decline in production this year on lower availability of cane for crushing.  The jump in prices is despite the arrival of a huge new season output and large held over stock from the past year.
 
The benchmark M-30 variety of sugar was quoting Rs 3,140 in the Agriculture Produce Market Committee (APMC), Vashi, on Wednesday as compared to Rs 2812 a quintal early this month. Similarly, the S-30 variety of sugar jumped to Rs 3,037 a quintal on Wednesday as against Rs 2,697 a quintal on December 1.

Rising sugar prices in the domestic market has hit Indian producers hard. As prices remained range-bound in global markets, Indian mills have lost parity for exports. Consequently, new contracts for sugar exports have evaporated with enquiries and orders dried up completely.

“Sugar mills have got approval for an increase in cess which traders see as an opportunity to buy on lower side. As a result, there is more trade buying. Also, cane availability in Maharashtra is estimated to be lower resulting into closure of mills early. So, these factors are supporting to sugar price spike,” said Sanjay Tapriya, Director Finance, Simbhaoli Sugars Ltd.

The year 2014-15 was critical for mills due to record high sugar production. Sugar prices fell to below Rs 20 a kg resulting into a cash loss of around 40% of the estimated cost of production of an average Rs 32 a kg. Total sugar production in India was recorded at 28.31 million tonnes during the crushing season 2014-15 (October – September) as against an estimated annual consumption of 23.5 million tonnes.

This year, too, sugar production is estimated at 27 million tonnes, although marginally lower than last year yet 15% more than India’s consumption.

Analysts, however, believe that a rebound was long overdue in sugar price, and which is happening now. But its continuation is suspect, especially after the full volume of new season output reaches the market, likely in a week from now. Also, pressure to make payments to cane famers begins, mills will be forced to dump their sugar volume in the mandis.
 

(Source: Assocham)