MUMBAI, MARCH 6:
The high investor interest in sugar stocks is likely to continue even as share prices of many sugar companies have doubled or tripled in the last one year. This is because retail sugar prices have inched up further on lower production estimates and are likely to remain firm or even rise a bit further in the near term.
On Monday, shares of sugar companies surged in the range of 1-12 per cent on the NSE.
After touching an all-time high of Rs.39.50 a kg twice, sugar prices on the National Commodities and Derivatives Exchange have been trading in a tight range between Rs.37.80-39.50 a kg during the first two months of 2017.
Ritesh Kumar Sahu, Fundamental Analyst — Agri Commodities, Angel Broking, expects prices to touch Rs.40 a kg in the futures market during the current season as the crushing season comes to end in Maharashtra and Karnataka early. Wholesale prices in Mumbai have already shot up to Rs.40-41 a kg on reduced production outlook for sugar season (SS) 2017. Sugar season starts in October and ends in September.
In its latest estimates, Indian Sugar Mills Association (ISMA) has said sugar production is down 18.5 per cent to 16.25 million tonnes (mt) in the October-February period, compared to 19.94 mt a year ago. ISMA has estimated production at 21.3 mt for the current season against 25.1 mt last year. Domestic demand is estimated around 25 mt.
According to Angel Broking, an opening stock of 7.6 mt will result in overall sugar availability of about 29 mt. Thus, the carryover stocks will be in a tight range of 4 mt when the new season crushing commences in November.
While UP and Tamil Nadu are recording higher sugar production, all other key States are registering decline in volumes owing to drought conditions during the past two years (mostly Maharashtra and Karnataka). Sugar production is on a declining trend since second fortnight of December 2016 as 40 per cent of the country’s sugar mills have closed operations until date.
While Achal Lohade, analyst at JM Financial also expects sugar prices to remain firm in the near term, she does not see a significant rise as expectations of higher production during SS18 on good monsoon in Maharashtra in calendar year CY16 would cap any sharp increase in prices.