Dealing Room Check

Sugar prices are not showing any signs of respite in spite of the government’s assurance of adequate stocks for 2016-17. Prices at the futures platform are up 5 per cent so far this year and are trading well above ₹3,900 per quintal. Early closing of crushing in Maharashtra and expectations of a fall in production kept sugar prices high.

Though a sluggish demand triggered a slight correction in prices in the second half of January, the second advance production estimates released by Indian Sugar Mills Association (ISMA) helped the prices to recover once again. ISMAestimates production to fall to 213 lakh tonnes from 234 lakh tonnes and consumption to stand at 242 lakh tonnes.

Total sugar production for 2016-17 has tumbled 10 per cent Y-o-Y so far as millers produced 128.55 lakh tonnes of sugar till January 2017 against 142.8 lakh tonnes last year.

Weaker production estimates may force bulk purchasers to increase their buying activities in the near term. Moreover, seasonal demand for the commodity is also likely to rise; this may keep sugar prices elevated in the coming days. The government’s decision not to lower the import duty and reduced possibility of the withdrawal of sugar cess may keep sentiment positive in the market, supporting sugar prices.

However, the government may take some strict action if prices continue to rise. Higher buying margin on the futures platform is likely to keep speculative buyers in check. In addition to this, the stock limit regulation may check a major spike in prices in the physical market as well.

The writer is Head-Commodity Research, Karvy Comtrade

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