Sugar prices seen low on weak demand, robust in the long run

Spot sugar prices are likely to remain flat-to-lower during the week as millers offload existing stocks before fresh arrivals begin, traders and analysts said on Monday.

Medium-grade November sugar futures on the National Commodities and Derivatives Exchange are seen lower tracking spot prices, they said.

"Sugar prices will trade at current low levels as demand remains steady and millers offload their existing stocks," said Mukesh Kuvadia, joint secretary, Bombay Sugar Merchants Association.

Demand has also tapered off as bulk buying from Gujarat and Rajasthan has waned, he said. "Demand and supply is balanced as fresh arrivals are yet to begin and mills are selling from their old stocks," said a Mumbai-based trader.

Fresh arrivals will only start by mid-December, said a Delhi-based trader. Retail and industrial buying is also low, hence price rise will be under check, the trader said.

Medium-grade November sugar contract is also likely to trade lower in tandem with the spot prices, said a Mumbai-based analyst. On Monday M-grade November was trading at Rs 1,833 per 100 kg, down Re 1 from Saturday.

However, the long-term outlook for the sector is sunny. Domestic sugar industry is bullish on sugar prices and has lined up substantial investments to expand cane-crushing capacities, particularly in Uttar Pradesh. Over Rs 1,500 crore is likely to be invested in expanding crushing capacity in Uttar Pradesh alone this season.

Another factor bouying industry hopes is that sugar output for the current season (October-September) is expected at 18-20 million tonne. With sugar production estimated at 21-22 million tonnes in the next season, the output will reach the comfortable level of 2002-03, the official said.

Higher sugarcane acreage and capacity enhancement by producers will help the country touch 21-22 million tonne mark this season.

With the output pegged at 21-22 million tonne, Indian sugar industry will still have an idle capacity of 3-4 million tonne, the official said, adding, that the combined capacity of sugar mills across the country was 25 million tonne per annum.

This year, the output has been estimated higher at 257 million tonne. Higher investments, growing returns, increasing demand of ethanol and molasses have prompted farmers to increase sugarcane acreage.

The sugarcane output is likely to increase further next season, as rains have been adequate for this water-intensive crop, the official said.

Analysts also believe that with high sugar prices farmers are less likely to divert cane for making jaggery and khandsari, a low-grade sweetener, thereby ensuring a higher output for sugar.

Domestic sugar prices are hovering around the Rs 18,000-19,000 per tonne level.