The commodity markets regulator, the Forward Markets Commission (FMC), has suspended trading in sugar futures with immediate effect. The commodity will remain suspended till December 31, 2009.
Confirming the decision, Rajeev Agarwal, member, FMC said, “No new contracts will be permitted. No fresh position will be allowed in any contracts. However, traders can square off the position in any active contract as and when they want.”
Currently, monthly contracts of both premium varieties — sugar M and S — are available for trade till November. However, November will be the last contract available for trading, but only for squaring of the position. The FMC communicated the order to all commodity exchanges on Tuesday evening.
Yashwant Bhave, secretary of the Department of Consumer Affairs attributed the FMC’s decision to rising international prices, lower domestic output during 2008-09 crushing season, inflationary pressure on the government and lower output forecast for the new season beginning November 2009.
“Next season is unlikely to remain favourable. Hence, the FMC communicated this decision and we welcome it. We will come to know the new season’s indicative output by December and then take a call,” Bhave said.
Industry players, however, do not see any change in circumstances as the decision will not change fundamentals of the politically sensitive commodity.
“Sugar is in short supply in India and therefore, the government is forced to take such temporary measures. But, it will have no impact on prices as such decision will not increase the availability of the sweetener,” said BJ Maheshwari, Wholetime Director of the Mumbai-based Dwarikesh Sugar Industries.
The sweetener’s global supply is worsening due to Brazil’s increasing interest towards direct ethanol conversion from sugarcane. According to Maheshwari, approximately 33 per cent of the total crushing capacity in Brazil has no diversification facility. This means, these mills cannot switch to sugar production from the existing ethanol. They will have to set up new facilities if at all they wish to produce sugar out of cane.
According to International Sugar Organization (ISO), the global sugar market is expected to remain in short supply between 7.5 - 7.8 million tonnes during 2008-09, up from a previous estimate of a 4.3 million tonnes. The decision will have a short term impact but price rise will continue as such decision will not add to the existing quantity available for consumers. Only hedgers and speculators will run out of sugar trading market, said GSC Rao, executive director, Simbhaoli Sugar Mills.
India’s sugar output during the crushing season 2008-09 (October - September) was estimated to fall 50 per cent to 14.5 million tonnes from over 28 million tonnes in the previous season.
