New Delhi, Sep 11 (IANS) Domestic sugar prices are inching up and are expected to remain high for 2-3 months. Local sugar prices have spiked in the past three weeks to record highs, thanks to concern over production coupled with delicate balance sheet (estimate 6mnt of closing inventory on Sep’tember 30 -- barely sufficient for two months of consumption in festival months) and delay in start of the crushing season to end - November (vs. mid-October typically) due to delayed festivals (hence availability of labour) and efforts by mills to optimise recovery levels, JM Financial (NS: JMSH ) Institutional Securities said in a report.
India has been one of the world’s leading exporters for the past three years and concerns over India’s sugar production estimate and possibility of negligible/zero exports have led to a further rally in global sugar prices to 12-year high.
However, this doesn’t help local producers much given the lack of exports. At the same time, local prices have no direct/indirect correlation with global prices given lack of any imports, and the government influences local prices through its monthly release mechanism measure, the report said.
India sugar production estimates are at risk of downgrades: Early last month, Indian Sugar Mills Association (ISMA) had put out a preliminary sugar production (net) estimate of 31.7mnt for SS24 (Oct'23-Sep’24). However, Aug’23 has been a dry period across the nation, particularly in the states of Maharashtra and Karnataka (these two states account for 45-50 per cent of India’s production), leading to emerging risk of a further cut in production estimates (on account of yield/higher diversion as cattle feed), the report said.
"We estimate India sugar production (net production, post diversion of 4.5mnt) of 30mnt for SS24E. We note that Uttar Pradesh, despite seeing dry weather in August, doesn’t get impacted in the monsoon given significant irrigation, thanks to crisscrossing rivers in the state.
“We see significant optimism returning in the sugar sector, thanks to seasonal factors (festival period and hence increase in sugar prices), and growing concerns on India’s sugar production estimate for the upcoming season (SS24E).
"In our opinion, a) India production could be around 30mnt (+/- 1mnt), higher than domestic consumption of 28-28.5mnt; hence, the situation is comfortable, export announcement, if any, will come only post May’24 (once the season is over), global prices have rallied to a record high but that is of little consequence for domestic sugar prices, sugar prices, which have risen sharply in the past three weeks, will remain firm though the government will contain any sharp increase given its impact on food inflation apart from implications on impending state/general elections," the report said.
V. K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services said since there is a global consensus on sustainability and renewable energy, the biofuel alliance proposed at the G20 summit is likely to be taken up in right earnest. Since India is the second largest producer of sugar, after Brazil, the Indian sugar industry stands to gain from the decision to increase ethanol blending with petroleum products.
Sugar prices have gone up by around 3 per cent during the last one month, the prospects for sugar companies have improved. But the good news is already in the price with many sugar stocks trading at 52-week highs, he said.
(Sanjeev Sharma can be reached atSanjeev.firstname.lastname@example.org)
Register for Aayush's Free Webinar by clicking on the below Image:
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.