With the prices rising, narrowing the gap between ex-mill and retail levels, experts have started looking it at as a turnaround in the sugar industry. The government’s active discussion on decontrolling the sector and possibility of a further export quota has raised favourable hopes for the industry.
“Five months of consistent decline in ex-mill prices was arrested with the government’s decision of fresh allocation of exportable quota this year,” said Abinash Verma, director general, Indian Sugar Mills Association (Isma).
Verma added the ex-mill price of sugar rose on lower than expected quota release by the government in July.
Between February and June, the ex-mill sugar price declined to Rs 2,600 a quintal in Uttar Pradesh. It recovered Rs 100-150 a quintal on positive news, to trade currently at Rs 2,750-2,800 a quintal. Similarly, in Maharashtra, the ex-factory sugar price recovered by Rs 150 to trade at Rs 2,600 a quintal. In both the major producing states, the ex-mill price is still lower by Rs 100 than the cost production at Rs 2,900 a quintal and Rs 2,700 a quintal, respectively.
“From this level, the price is unlikely to come back. So, we can say the fate of the sugar industry is turning around. The current retail price, however, at Rs 3,200 a quintal is at a 15-month high,” said a senior official with a UP-based mill.
Both S-30 sugar and M-30 sugar for stockists surged by Rs 25 in Mumbai on Tuesday to trade at Rs 2,761.50 a quintal and Rs 2,888.50 a quintal respectively.
In Delhi, sugar prices improved similarly, on lifting by bulk consumers and retailers. A reduction in arrivals also supported the sweetener price in the Delhi market.
Spot medium and second-grade sugar moved up from Rs 2,950-3,050 and Rs 2,925-3,025 to Rs 2,950-3,100 and Rs 2,925-3,050 a quintal respectively. Mill delivery medium and second grade prices also went up from Rs 2,750-2,940 and Rs 2,725-2,915 to close at Rs 2,775-2,975 and Rs 2,750-2,950 a quintal, respectively.
“Sugar prices are rising, with fundamentals suddenly turning favourable. The government granted permission for 500,000 tonnes of sugar export which the industry is not satisfied with. Isma has been demanding another million tonnes of export quota during this sugar year amid guarantee that the quantity will not squeeze supply in the domestic market. A slight reduction in Brazil’s crop estimate has also helped appreciate the price which we believe will continue in the days to come. This is a turnaround for the industry, as the recovery in price is likely to remain long-lasting,” the official said.
Meanwhile, Isma has urged the government to take some more measures to raise ex-mill sugar prices to the level of the cost of production. In a letter to the secretary, department of food and public distribution, Isma said the government’s decision to allow export of 500,000 tonnes of sugar has ensured ex-mill sugar prices do not fall further.
Sageraj Baria, managing partner, Equatorial Industry Alternate, an equity research firm, said, “Industrial demand, which contributes nearly 70 per cent of sugar consumption in India, has been continuously rising. Sugar sector in Maharashtra is highly political as it determines the fate of the state government. Since the state contributes over one-third of India’s sweetener production, the government will not let farmers’ and mills’ economic condition worsen next year. From a realisations point of view, the condition of both farmers and mills remains scary this year.”
