Sugar scrips up, spot rates dip on high supplies

Written by Commodities Bureau | New Delhi, Mumbai | Updated: Dec 31 2008, 07:52am hrs
Shares of leading sugar companies like Bajaj Hindustan, Balrampur Chini Mills, Dhampur Sugar and Shree Renuka Sugars ended 4%-6% ignoring an official order regulating exports.

However, sugar spot and futures were down Tuesday on fear of increased supplies after the central government fixed a higher-than-expected January-March quota. Spot prices of medium grade sugar at the Vashi wholesale market declined by Rs 20-Rs 25 to trade at Rs 1,965-Rs 2,020 per quintal, while spot prices were down Rs 25 to trade at Rs 1,900 per quintal on Tuesday.

Market watchers said that the sugar spot and futures, which went down on Tuesday, could remain so in the next few days as supplies are expected to increase after the central government released a free sale quota of 50 lakh tonne for the next three months, 600,000 tonne more than in the same quarter last year. But, despite this sugar production is expected to dip in 2008-09. That would in turn raise the demand for sugar and its prices, which would benefit the industry. Analysts say that this would help the bottomline of the sugar companies.

So, the curbs in the export market could, to some extent, be counterbalanced. The rise in shares of scrips on Tuesday reflected this positive assessment. A senior sugar company official said that around 1.5 million tonne (MT) to 2 MT sugar would be exported in 2008-09, down from over 4.5 MT last year. At close,shares of Bajaj Hindustan Ltd was quoted at Rs 66.10, up 3.69% from the previous close. Balrampur Chini Mills was trading at Rs 48.20, up 5.20%, Dhampur Sugar at Rs 25.50, up 4.94% and Renuka Sugar Mills at Rs 70.10, up 6.62% from the previous close.

On Monday, the government had regulated exports by re-imposing the release order mechanism for exports from January 1, 2009. Through the release order for exports, the government fixes the quantum of sugar that each mill can export just like it did for domestic sale each month. This helps in monitoring the movement of sugar outside the country and also curtails any excess exports. It also fixed a higher than expected January-March sugar quota.

Higher supply and slack demand will force mills to sell more quantity. Mills are currently offering old stocks. Prices may remain under control till mid-January, Mukesh Kuvadia, secretary, Bombay Sugar Merchants Association (BSMA), told FE. Prices of January 2009 contracts at the NCDEX slipped below Rs 1,900-levels on fresh offerings, to finally settle at Rs 1,864 per quintal. The monthly supply for January is enough to cater to the domestic market and may increase pressure on the local prices, a local dealer said.