 "A vendor arranges a price tag over a sack filled with sugar at a wholesale vegetable market in Ahmedabad September 11, 2013. REUTERS")
The Union government has empowered states to impose stock holding limits on sugar under the Essential Commodities Act. States have also been directed to take action against any artificial increase in price.
Prices rose as a result of rising exports after a rebound in international prices, lower than expected domestic production and summer demand from cola majors and ice-cream makers. However, soon after reports came out about possible stock limits, sugar prices on the National Commodity and Derivatives Exchange(NCDEX), a derivative exchange, fell four per cent before recovering slightly. May futures for Kolhapur delivery, however, closed 2.7 per cent lower at Rs 3422 per quintal on NCDEX.
In the Mumbai (Vashi) spot market, the medium grade went up 17 per cent from Rs 3,202 at the beginning of the calendar year to Rs 3741 on Wednesday. The spot market was not affected by reports of limits as currently supply is short and export and seasonal demand from cola majors and ice cream makers is good.
Sources said the proposal to impose stock limits was discussed at a recent meeting of the committee of government secretaries. Some officials from the food department felt that such a limit would go against the interest of growers, who after a long time were seeing good price realisation.
The ministry is understood to have received reports that the price spurt is because of hoarding by traders.
The industry fundamentals are improving with the international market turning hot for sugar because of lower production in other major countries like Brazil and consistent downward revision in production in India. Sugar price touched a three year-low of Rs 2,300 a quintal in July 2015.
Indian Sugar Manufacturers Association (Isma) has now said production could be well below even 26 million tonnes (mt) this season, a fall of about 10 per cent, while exports have increased and the year could end with two mt of exports.
The price spurt has benefited sugarcane growers as mills are paying arrears. According to Isma, "as compared to the cane price arrears of 2015-16 season of over Rs 21,800 crore as on April 12, 2015, arrears during the current season are lower about Rs 13,300 crore.”
Abinash Verma, director general, Isma said, “current prices in the past 15 days are just covering cost and if one looks at seasons average price of Rs 29.5-30, that is not covering cost. In the remaining season, industry needs to get average price of Rs 36-37 per kg to cover cost. Hence, controls at this stage are not required.”
Sugar companies too are seeing profits, though cleaning of balance sheets may take some time as debt levels are high.
ICRA says, “Profitability improvement is likely to be moderate for mills based in Maharashtra and Karnataka, given the lower cane availability coupled with the increase in prices in 2016. This apart, profitability is also likely to be supported by improved realisations for by-products.
While better profitability and stock reduction are expected to result in improved liquidity and debt coverage metrics for sugar mills in the near term, the same would continue to be weighed down by high amounts of debt outstanding and/or dues incurred to cover losses in the previous sugar years.”
