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Low inventory likely to drive up sugar prices

Low inventory likely to drive up sugar prices
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First Published: Mon, Apr 11 2011. 09 13 PM IST
Environmental uncertainties have taken toll on food prices globally, as shortfall/surplus conditions created by erratic food production cause frequent imbalances in the demand-supply equilibrium. On account of higher sugar production expectation of around 24.5 million tonnes (mt) in SY11 (sugar year, or SY, is October-September period) and another expected increase of around 2 mt in SY12 (against consumption of around 23.5 mt), domestic sugar realizations are expected to remain stable. However globally, even after assuming incremental supply from Brazil, sugar inventory is expected to remain tight.
In this scenario of strong international sugar prices, Shree Renuka Sugars Ltd is better placed vis-a-vis its peers such as Balrampur Chini Mills Ltd and Bajaj Hindusthan Ltd because of its global presence and diversified business model that offers better earnings visibility against the more volatile business model of domestic firms.
Though uncertain environmental conditions led to severe shortage of sugar globally during SY09-10, higher production in India and Brazil improved global sugar availability by around 8 mt in SY10. However, even after factoring in higher production from India and Brazil, global sugar inventory is likely to remain low (2–2.5 months of consumption) and hence will provide a cushion to international sugar prices.
While India’s sugar production is estimated at around 24.5 mt, our interactions with firms suggest a marginal downward revision to the previous level.
Edited excerpts from a report by Religare Capital Markets. Your comments are welcome at mintmoney@livemint.com
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First Published: Mon, Apr 11 2011. 09 13 PM IST