Strong fundamentals and good summer demand once again pushed up the sugar futures market on Monday after a short correction last week and may continue to rise over the next few days, despite the imposition of special margins levied by Forward Markets Commission (FMC) to curb the excess speculation in the commodity.

Despite the facts that government?s efforts to control the domestic prices by imposing numbers of measures including approval of duty free imports of white sugar, imposition of stock limit, additional release of free sale quota and special margins on long positions of all running contracts, futures prices on the National commodity & derivatives exchange (NCDEX) on Monday increased by 2% over the previous day.

NCDEX June contracts jumped up by Rs 46 to finish at Rs 2,341 per quintal over previous day on continued support even after the report that NCDEX and MCX imposed special margin of 5% on sugar futures to curb volatility in prices. With these special margins, the total margins on sugar contracts would be 17.5% including an initial margin of 7.5% and special margins of 10%.

?I don?t think special margins will have any practical impact on the futures market as spot prices in North India are still ruling higher by Rs 100 over futures prices,? a leading trader of Kolhapur said.

?Consideration the good summer season demand, we don?t expect much downside in prices, despite the increase in overall supply,? he said.

Spot prices of sugar medium grade in North India are already ruling high at Rs 2,445 per quintal in Muzaffarnagar and Rs 2,415 in Delhi market. In Navi Mumbai, medium grade prices were ruling at Rs 2,280-2,370 per quintal.

The FMC was recently asked by the Committee of Secretaries (CoS) to watch the movement in sugar prices in the futures market and take necessary steps to curb excessive speculation.

In the next round of measures, the government may ask sugar mills to sell some stocks directly to co-operatives like Kendriya Bhandars at mutually agreed price. Also the regulator may even increase special margins by another 5% over the next few days. The government may also consider the proposal to convert excess (unsold) April free quota into levy sugar.

?From the medium term perspective, fundamentals for sugar remain strong due to lower production estimates in the India as well as rising deficit in global markets. World sugar demand is expected to outstrip supply and build a larger deficit in 2009-10,? an analyst with Angel Commodities said.