Sugar may decline by Rs 50 a quintal

Sugar prices are likely to decline between Rs 30 and Rs 50 a quintal by the month-end due to a bearish sentiment in the wake of higher output this year.

The price of the sweetener rose by Rs 30-40 a quintal across all categories in the last two days following the government's notification to debar mills selling more than the allocated quota from buffer stock subsidy, exports subsidy and loan disbursement.

The sugar industry currently enjoys an export subsidy of Rs 135 a quintal. Besides, sugar mills need to raise bills on a quarterly basis to avail of buffer stock subsidy, which reimburses their interest cost, carrying cost, insurance cost and third-party warehouse rent.

The mill delivery prices of S30 and M30 are quoted between Rs 1,230 and Rs 1,240 a quintal and Rs 1,250-1,270 a quintal, respectively, while for naka delivery, these varieties sell in the range of Rs 1,310-1,320 a quintal and Rs 1,340-1,360 a quintal, respectively. An exceptionally better quality of sugar for mill delivery is quoted at Rs 1,300 a quintal and the same is sold at Rs 1,375 a quintal for naka delivery.

According to industry sources, the government, in a notification issued last Friday, threatened sugar mills against the practice of selling beyond their quotas with the permission from the court under respective jurisdictions.

"The practice has been going on for quite a long time as companies need to clear farmers' arrears. Why the sudden action against a decade-long practice," asked an executive of one of the leading mills in Uttar Pradesh.

Sugar mills required to sell extra inventory piled up in their warehouses ahead of monsoon, said the official.

"We need to see at least for a week whether the trend (rising sugar prices) continues for long as a consequence of the government's action. But, looking at the higher output this year globally, the overall price is likely to remain depressed," said Rajendra Shah of Hitendra Kumar Thakarshi & Co, a Vashi-based trader.

The government is also considering more incentives for sugar mills to check the falling prices amid an expected record output of about 265 lakh tonnes in the 2006-07 season. Plans are afoot to increase the buffer stock up to 50 lakh tonnes from the current 20 lakh tonnes.

The total sugar stock in the country is likely to go up to 33 million tonnes with about 6 million tonnes of carry-over stocks from the last year.

It is mandatory for sugar mills to allocate at least 10 per cent of their total produce for the public distribution system.

Several mills in Uttar Pradesh, Andhra Pradesh, Karnataka and Maharashtra have ended their current season with more than 15-20 per cent output.