Sugar prices to remain stable for now

Scrapping of stock limits can support prices

Sugar has witnessed a series of policy changes in 2017 when the Government applied all possible measures to rein in sugar prices — such as imports at nil/reduced duty or imposition of stock limits.

Now things have reversed: sugar prices have started to moderate and that is worrying the Government. As a result, it has scrapped stock limits and is contemplating hikes in import duties and is likely to push exports, all to check the fall in prices.

Helped by better output numbers for the current season (2017-18), the expectation of further increase in the next season’s production and improved global supply prospects, sugar prices have lost 15 per cent in the last three months.

However, prices are looking to remain stable at least till March-April post which the lower levels can trigger buying by bulk purchasers.

Domestic sugar production is expected to surpass 25 million tonnes (mt) due to increased cane planting and sufficient soil moisture amidst satisfactory rainfall in key producing areas except Tamil Nadu.

Sugar production

As reported by ISMA, sugar mills across the country have produced 10.32 MMT of sugar as on 31st December’17 which is 26% higher than last year’s production for the corresponding period. The increased output primarily comes from the states of Maharashtra and UP delivering 34% and 21% more sugar respectively.

With an opening balance of 3.88 MMT as on 1st October’17 and 0.2 MMT of imports the total availability of sugar is estimated at 29.17 MMT against the consumption requirement of 25 MMT leaving 4.17 MMT of sugar for the start of 2018/19. The carryover stocks would be sufficient to meet India’s 3-month consumption requirements before the next season’s harvest starts. Also, an increase of 6.5% in the sugarcane acreage has been reported by the government for 2017/18 which strengthens the prediction of India achieving the sugar output in the range of 28-29 MMT for 2018/19 subject to normal monsoon in the upcoming season. That’s likely to put pressure on domestic sugar prices. However, the entry of bulk buyers (confectioners, beverage makers, sweet makers, pharma companies purchasing 60% of total sugar supply) at every dip will provide support to domestic sugar prices.

The Pakistan factor

An anticipation of cheaper sugar imports from Pakistan (which has increased export subsidies to offload its excess production) is troubling India’s sugar mills. However, the government may hike import duty from 50% to 75% to check sugar imports and cut export duty to improve export competitiveness. Besides, the possibility of export to Indonesia which has expressed interest in buying Indian sugar is also there.

Softening global prices

The sugar futures on ICE have witnessed an annual loss of 23% weighed down by the anticipation of world setting for a record output of 185 MMT of sugar in 2017/18. High production in Brazil and Russia, expected output recoveries in India and Thailand, the emergence of European Union (EU) as a major sugar supplier due to end of production quotas and allocation of more acreage in China are the contributing factors. However, high consumption demand may offset the part of the increase in supply. China, the world’s leading importer is likely to import less because of higher domestic production and tighter import controls. China has raised import tariffs to 95% from previous 50% for imports beyond the quota limits. As a result, Indonesia is likely to become the world’s top sugar importer.

Outlook

Adequate output in the current season along with expectation of a noticeable production jump next year and the softening global prices are likely to keep sugar prices in domestic market under pressure. However, the government support measures are expected to keep the fall in price restricted and be range bound. We may witness slight firmness in sugar prices once the crushing season gets over and the bulk buyers enter the market.

The writer is vice president and head of agriculture, food, and retail at Biznomics Consulting.

Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get





MORE FROM BUSINESSLINE


 Getting recommendations just for you...
This article is closed for comments.
Please Email the Editor