The question is, whether prices of sugar can be sustained at the higher levels. Whenever there is an uptrend in price, the government releases an additional quota for sale.
However, in May, despite the government releasing a quota of 50,000 tonnes, the prices continued to be firm. Some industry sources say the increase in demand is due to excess off-take by the soft drink manufacturers besides the usual summer demand. However, some analysts attribute the real reason behind sugar prices being firm to expectations of a much lower sugar output than projected. Sugar production was at its peak in 1995-96 at 164 lakh tonnes and is expected to decline to 130 lakh tonnes in the current season. There may be a further decline in sugar production in 1997-98.
However, industry sources feel sugar production might not see an uptrend in the 1997-98 because the area under sugar cane cultivation has also been declining. Cane production, projected at 28.28 crore tonnes in the current year, is expected to decline to 24 crore tonnes.
The only threat for the firming up of sugar prices may come from imports. The government would not like the uptrend in prices and is likely to immediately allow imports. The stocks that have witnessed buying interest have been the fully integrated sugar plants with captive power generation. Another good news for the sugar companies is the increase in prices of molasses. With this, the fortunes of the sugar companies may change for the better.
