Sugar prices jump 24% in three weeks as selling pressure reduces

(The Economic Times)– Sugar prices have increased by almost 24% in last 20 days with a jump in prices by 8% in the last two days.

A mix of factors including reduced selling pressure on mills as the crushing season is closer to its end, increased buying by stockists, availability of soft loan from the banks, talk of El Nino, increase in international prices due to lower production expected from Brazil are being held responsible for the current rally in sugar prices “Mills have been very conservative in selling sugar from last two to three weeks. Especially the small mills, which have already sold 60% to 70% of their sugar stock under distress, are releasing very less sugar,” said an official of a leading MNC trade house.

The co-operative banks give loan to sugar mills based on the average sugar price prevailing in the previous three months. As sugar prices had crashed to Rs 25-26/kg, the amount of loan available to sugar mills based on the sugar price was so less that they had to make distress sale to make cane payments. “As the crushing season is at its tail-end, there is less pressure on the mills now to make cane payment,” said an official.

The disbursal of interest free soft loans by banks has reduced their dependence on sugar sale for working capital. The Maharashtra State Co-operative (MSC) Bank, the apex co-operative bank for Maharashtra, has disbursed Rs 237 crore of interest-free loan till now of the Rs 451 crore it has sanctioned to 28 mills in the state. Export of sugar has also proved useful for improvement in sugar prices, which remained sub-dued for almost two years, with a steep fall in last 8 to 10 months.

The union government had to announce a package of Rs 6,600 crore of interest free loan and also subsidy for export of raw sugar to help the industry tide over the financial difficulties.

According to industry sources, India has exported 1.9 million tonne sugar, including white and the raw sugar, which will be shipped out till April 14. The talk of El Nino impacting sugar cane production as also the expected fall in sugar output from UP and Tamil Nadu in the ongoing 2013-14 season have to aided the recent rally in sugar prices.

Global sugar prices are already up as sugar production in Brazil is expected to shrink due to a drought whereas the Thailand output is also expected to be lower.

Yet, the sugar mills are also surprised by the sudden increase in sugar prices. SN Taware, managing director of Indapur-based Shri Chhatrapati SSK said: “We are confused by the way sugar prices are moving up.”

However, they are happy as prices have improved after almost two years. N Ramanathan, managing director ofErode-based Ponni SugarsBSE -0.04 % said: “The domestic sugar prices may improve
further and remain at this level for some time. The sugar price should be about Rs 35/kg to Rs 36/kg to recover the cost of production.”

Apart from the regular summer season increase in demand, stockists too have become active. The NCDEX sugar futures for April delivery traded at Rs 3,226/quintal on Wednesday. Ashok Jain, president, Bombay Sugar Merchants’ Association said: “Sugar prices have jumped by Rs 2/kg to Rs 2.5o/kg in last two days. There is lot of buying and selling taking place.

The overall demand for the month of April is high as compared to previous year. “As the sugar prices were declining, traders were doing hands to mouth buying. So the there are no stocks in the pipeline, which has added to the April demand,” said a sugar miller from South.