High sugar output may keep prices low

High sugar output may keep prices low
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First Published: Tue, May 18 2010. 10 40 PM IST

Graphic: Yogesh Kumar/Mint
Graphic: Yogesh Kumar/Mint
Updated: Tue, May 18 2010. 10 40 PM IST
Just when everyone thought domestic sugar prices could only go up, a series of measures by the Union government and higher-than-expected output in key producing countries pulled down prices.
Graphic: Yogesh Kumar/Mint
The March quarter financials of sugar producers were affected, as they paid high procurement prices for cane, but were not able to sell their output at peak prices.
Most of the companies now expect sugar prices to remain subdued in the near future and are shifting their focus to next year’s sugar production and what the government’s future moves will be.
The current season’s sugar production in India is now estimated at around 18 million tonnes, compared with estimates of just 13-15 million tonnes earlier. But next year’s sugar production is expected to be even higher at 23-25 million tonnes.
If predictions of a good monsoon are proved right, better yields along with higher cane acreage are expected to boost output next year.
Global sugar output, too, is expected to rise, with Brazil’s sugar production expected to increase 9% and China’s by 21%.
The International Sugar Organization was recently reported as having lowered its estimate of the global sugar deficit from 9.4 million tonnes to 8.5 million tonnes.
The outlook for international sugar prices thus looks bleak. This, in turn, will affect the outlook for domestic sugar prices too. But there is an equally important force closer home that could bail the industry out—the government. The Union government has taken a series of measures over a period of time, including zero import duty on sugar, allowing imports of raw sugar without imposing an export obligation, imposing restrictions on stocks kept with bulk consumers and then imposing a weekly quota obligation on mills. The collective effect of these measures was to improve availability and create a perception that the government would do anything to lower prices. That and a changed production scenario were sufficient to pull prices down.
Sugar companies are now hoping that the government sees their point of view and starts reversing these measures.
The weekly quota obligation has already moved back to a monthly obligation and bulk consumers can now keep 15 days of stock instead of 10 days earlier. Imposing import duties on white sugar is the next key demand of the industry.
But the government may be in no hurry to see sugar prices go up. After all, sugar prices are still 20% higher than their levels a year ago. Sugar producers may thus have to be content with lower margins from sugar in the near future and hope to make up through the sale of by-products.
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First Published: Tue, May 18 2010. 10 40 PM IST