Mumbai: Sugar mills in India’s top sugarcane producing state, who were forced to hold back imported raws at ports after a ban on imports by the state, may profit now on higher realizations from sales, analysts and traders said.
Uttar Pradesh (UP) government revoked a ban on imported sugar this week to tame prices.
Bowing to pressure from farmers who said overseas purchases curtailed their bargaining power with mills, UP slapped a ban in November 2009, compelling millers to stack up goods at ports.
Analysts and dealers said lifting of the ban will help millers, who can process and sell raws at current higher rates.
“They are already sitting on a decent amount of notional profit,” Vikram Suryavanshi, analyst at Karvy, said referring to Bajaj Hindusthan and Balrampur Chini.
India’s top producer, Bajaj Hindusthan, held more than 500,000 tonnes in ports, while another major producer, Balrampur Chini, held under 100,000 tonnes, trade sources said.
“You start making profit even if there is a $100 difference between raw sugar and white sugar. And, at today’s prices, the difference is more than $200,” Suryavanshi added.
Mills were likely to refine and sell most of the quantity in the third quarter-ending June 2010, when traditionally the demand remains strong, enabling them to report strong profit on volume growth, analysts said.
Shares in Bajaj Hindusthan ended up 2% while Balrampur Chini closed up 3% in a weak stockmarket while other sugar stocks fell on concerns prices will drop on increased availability.
In 2009-10, India is likely to produce 15.3 million tonnes, falling severely short of domestic consumption of about 23 million tonnes for a second straight year, a Reuters poll showed, driving global prices to multi year high.
Most mills signed deals when raw sugar was about 15-16 cents per lb compared with 24 cents now, a Pune-based broker, who did not want to be named, said.
Millers in UP started contracting raw sugar after the government allowed duty free imports in April, mostly for delivery in end-2009.
However, the ban had fuelled concerns companies might have to either sell their imports or give it to non-UP based mills, to process it on a profit-sharing basis.
“There are no concerns now. The millers can sell the sugar after processing in the following quarters,” Pranshu Mittal, analyst with Centrum Broking said.
New York raw sugar futures ended at 23.68 cents a lb on Tuesday, down 0.44 cent or 1.82%.
In August spot sugar price in Kolhapur, a key market in top sugar producer Maharashtra, was around Rs2,500 per 100 kg compared to Rs3,200 on Wednesday.
“Prices have corrected significantly in last one month, but still they are very high compared to July-August levels when these mills were signing deals,” said a Mumbai-based dealer.
“Mills will try to refine raws as quickly as they can,” he added. “They are still crushing sugarcane and will get bagasse.” Bagasse is a fibrous waste used for power generation.