Sugar stocks sweeten on fall in global output

Sugar stocks continue to get sweeter with every passing day. The stocks on Wednesday shot up on the back of a price rise, a fall in global production, increasing use of ethanol and exports to Pakistan.

Earlier, a cyclone in the sugar-growing region of Australia, expectations of firm domestic prices and the possibility of government allowing exports from the 10 per cent quota all added to the bullish sentiment.

While the benchmark Sensex on Wednesday witnessed a modest growth of 0.88 per cent, sugar scrips simply zoomed. The gainers include Mawana Sugar (up 12.24 per cent to Rs 119.65), Rajshree Sugar (9.97 per cent to Rs 178.1), Dharani Sugar (9.94 per cent Rs 45.9), Triveni Engineering (9.10 per cent to Rs 112.7), DCM Shriram Industries (8.52 per cent to Rs 175.1), Sakthi Sugar (8.11 per cent to Rs 209.85), Oudh Sugar (7.28 per cent to Rs 210.7), Simbhaoli Sugar (7.09 per cent to Rs 166.95) and Dhampur Sugar Mills (6.91 per cent to Rs 250.7). Most of these stocks have posted solid gains over the past week, as well.

Sugar prices in London recently rose to a record high level, on expectations that a hike in crude oil prices may force Brazil to use more cane in making ethanol. In Brazil, refined sugar prices have surged in the past year. Brazil is the world's biggest raw sugar producer and ethanol consumer.

Global sugar production has dropped because of bad weather. The recent cyclone hitting banana- and sugar-growing areas of Australia and the resultant crop failure may lead to an output loss of about 2-5 lakh tonne.

Australia is a leading exporter of sugar and may get affected in the short term. This would widen the demand-supply mismatch in the global sugar market. According to Kapil Bagaria of Sushil Finance Consultants, this augurs well for domestic sugar producers.

Vikram Suryavanshi of Karvy Stock Broking said, "In the domestic market, sugar prices are expected to remain firm at least till the next crushing season, in October. Then, there could be an excess supply as farmers are shifting to sugarcane from other crops. Till then, the outlook is positive."

Another growth potential lies in carbon trading. Bagaria points out that all sugar companies in India are eligible for carbon trading and it is only a matter of time before they apply, as Ugar Sugar has done. Moreover, the petroleum ministry has indicated an increase in supply of ethanol-blended petrol in most parts of the country by the year-end.

Ethanol is produced from molasses "" a by-product of sugar manufacturing.

Sugar scrips have posted a sharp rise from the January levels, barring some corrections in between. Manufacturers have expansion plans to tap the growing demand. Further, for the second consecutive month, India is exporting about 50,000 tonne to Pakistan.