Millers worry over freefall

The bloodbath in the National Commodities and Derivatives Exchange (NCDEX) with prices falling by Rs 75 per 100 kilograms in three days till Friday and slipping even below the spot rates has sent alarm bells ringing among traders, millers and government officials alike. NCDEX has promised corrective measures, if any foul play is observed in trading.

The benchmark M-grade May futures fell Rs 30 Friday to close at Rs 1,730 per 100 kilograms.

"Such drastic fall is unhealthy for the markets and we have requested the government to take measures to rectify the situation," Vinay Kumar, managing director, National Federation of Cooperative Sugar Factories told CRISIL MarketWire.

"Price fall shows market forces are at play and there are traders who still feel prices in the spot market can decline and are therefore selling at a discount. It is only if we see any wrong doing, it will be investigated and corrective measures taken," a top NCDEX official said.

There is nothing unusual in backwardation taking place and the selling pressure at the exchange points towards the stocks available with the mills, he said.

Sugar mill associations, however, feel futures prices are also driving down the spot market and artificially depressing the prices, which have nothing to do with the fundamentals.

They have demanded that the sellers' options in sugar futures be done away with and deliveries be made compulsory. Penalty on non-payment of dues should be increased to 10 per cent from the current 0.5 per cent, is another demand.

Their contention is that a handful of mills are hedging their sugar at the exchange and manipulating prices. This is counterproductive and reduces the industry's overall capacity to make cane price payments to farmers, they argued.

Even as allegations and counter-allegations fly thick and fast, the unprecedented price fall has also come under government's lens.

We are taken stock of the situation and the anomalies will be addressed to shortly, a food ministry official said.