Indian sugar prices climb as production drops amid record demand

Sugar prices in India have climbed more than 6% in two weeks and are likely to rise further as production is set to fall and demand from bulk consumers to strengthen during the peak summer season, industry officials told Reuters.

Higher local prices will improve the margins of sugar makers such as Balrampur Chini, Shree Renuka Sugars , Dalmia Bharat Sugar and Dwarikesh Sugar , helping them make cane payments on time to farmers, dealers said.

But the price rise could add fuel to elevated food inflation and discourage New Delhi from allowing additional sugar exports, supporting global prices which are already trading near multi-year highs.

Sugar prices are rising mainly due to the downward revision in production in top sugar producing state Maharashtra, said Ashok Jain, president of the Bombay Sugar Merchants Association.

Maharashtra is likely to produce around 10.5 million tonnes in the 2022/23 marketing year ending on Sept. 30, dealers estimate, compared to an earlier forecast of 13.7 million tonnes.

"Prices would rise further in coming months as demand from bulk buyers is expected to rise because of summer season," he said.

Sugar demand rises as consumption of cold drinks and ice cream climbs in India during the summer months that run roughly from April to June. Demand also gets a boost in summer from the wedding season.

Demand has rebounded after being disrupted last year by the COVID-19 pandemic, and could rise to a record 28 million tonnes this marketing year, said one Mumbai-based dealer with a global trading firm.

The government is unlikely to allow additional exports as closing stock for the season could fall to around 5.5 million tonnes, the lowest in six years, he said.

India has allowed sugar mills to export only 6.1 million tonnes of the sweetener in the current season, down from the record 11 million tonnes in the previous season.