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Sugar prices show no signs of recovery

Sugar prices show no signs of recovery
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First Published: Mon, Apr 19 2010. 11 11 PM IST

Updated: Mon, Apr 19 2010. 11 11 PM IST
Like consumer companies, sugar companies will be keenly interested in the monsoon forecast, though for different reasons. While consumer companies will be praying for a good monsoon so that rural consumer demand comes back to form, sugar companies may find themselves lowering their price outlook if that happens.
After a year of roller coaster sugar prices, millers may be staring at a bumper crop this year, accompanied by a good crop outlook in the global market, while the prospects of a stronger rupee make imports cheaper and exports less remunerative.
When Indian sugar companies report their March quarter results, their earnings growth will be handsome, driven by higher year-on-year growth in sugar realizations.
But investors will get little solace from those numbers as their concerns will be directed towards the price outlook for the year ahead and whether the sugar cycle has turned for the worse. Wholesale sugar prices are down by 32% from the recent highs they reached. The effect has been telling on stock prices, which have plummeted from their 52-week highs reached in January. Bajaj Hindusthan Ltd’s share price is down by 10% from a month ago and Shree Renuka Sugars Ltd’s share price is down by 14%.
India’s sugar output in the current season is expected to be about 18 million tonnes (mt), much higher than the earlier estimate of 15 mt. Sugar cane farmers have reaped a windfall and will probably increase their planting for the new season. If, monsoon does not play spoilsport, a sharp jump in production can be expected in the season ahead.
Brazil’s sugar industry association Unica estimates the sugar cane harvest in the south central region for 2010-11 to be higher by 10%. And it expects a slight increase in the proportion of cane used to produce sugar versus ethanol. Since the average sugar recovery rate is also expected to increase, total sugar production is estimated to rise by 19%.
Another large producer and exporter, Thailand is also expected to see higher production. The US department of agriculture has estimated Thailand’s sugar production will increase by 3% to 7.2 mt after having declined by 3.6%. A lower deficit or even a surplus in production could keep sugar prices low for a long time.
India’s sugar production estimates, too, will start coming in once the area under sugar cultivation is confirmed and as the monsoon progresses. Higher cane availability will see integrated sugar producers get better contribution from selling by products and co-generated power. The new model of importing raw sugar and processing it in stand-alone refineries will be tested in a period of low prices.
Having burnt their fingers badly, investors will remain wary of sugar stocks in the near future. Their worry will be if sugar has entered a long-term downtrend.
But in India, the weather and politicians decide the fate of sugar companies. Sugar companies will hope that at least one of them comes to their rescue.
Write to us at marktomarket@livemint.com
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First Published: Mon, Apr 19 2010. 11 11 PM IST