India, the world’s biggest user of sugar, ruled out banning futures trading to arrest the surge in prices of the sweetener as production falls to a four-year low.
“Prices have spurted because of a supply-demand mismatch,” said B C Khatua, chairman of the Forward Markets Commission, which regulates the nation’s 22 commodity exchanges.
Sugar futures on Mumbai’s National Commodity & Derivatives Exchange (NCDEX), rose to the highest last week since trading began in 2003 on forecasts of a lower output. The government, seeking re-election in polls that started April 16, may halt trading if prices of the sweetener rise further, N Sanyal, joint secretary at the food ministry, said this week.
“The solution lies in addressing the mismatch and not in banning trading,” Khatua said. “Open interest positions are widely dispersed and there is nothing to suggest that the market is being manipulated.”
Open interest is the number of contracts outstanding in value terms.
May-delivery sugar on the National exchange gained as much as 0.7 per cent to Rs 2,253 ($44.8) per 100 kilograms. Prices have gained 60 per cent in the past year.
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The regulator doesn’t plan to levy a special margin on long positions, or on bets that prices will rise, in sugar contracts, and will closely monitor price movements, Khatua said.
The National exchange and the Multi Commodity Exchange of India (MCEX) have imposed additional margins on long positions in potatoes and guar seeds in recent weeks to curb speculations.
Wheat Ban
In December, the government ended a seven-month ban on trading rubber, soybean oil, potatoes and chickpeas after inflation slumped from a 16-year high in August. Still, a ban on wheat and rice futures imposed more than two years ago hasn’t yet been revoked. The Indian Sugar Mills Association has forecast production to fall 45 per cent to 14.5 million tonne in the year to September 30, a second year of decline.
The government in February allowed duty free imports of raw sugar until September for processing and sale locally, and last week eased rules further by extending the tax break to refined sugar, to bridge the shortfall. It has also placed limits on the amount of sugar traders can hold.
State-owned trading companies have been permitted to import up to 1 million tonne by August 1.