Sugar prices jump 25% over over two months, to remain a sweet deal for investors

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New Delhi | Published: October 18, 2015 11:44:10 PM

After falling over 20 per cent during January to July period in 2015, sugar prices have climbed around 25 per cent over the past two months.

Sugar priceSugar price at the National Commodities and Derivatives Exchange jumped to Rs 2,699 per quintal on October 7 from Rs 2,164.15 per quintal on July 31. (Reuters)

After falling over 20 per cent during January to July period in 2015, sugar prices have climbed around 25 per cent over the past two months. According to market experts, erratic monsoon rains in the major sugarcane producing states in Uttar Pradesh, Karnataka and Maharashtra and pick up in festival demand contributed to sugar price surge in the recent past.

Sugar price at the National Commodities and Derivatives Exchange jumped to Rs 2,699 per quintal on October 7 from Rs 2,164.15 per quintal on July 31. The sweetener was trading at Rs 2,718.35 per quintal on commodity bourses on January 1. According to market experts, sugar price may rise further to Rs 3,000 per quintal by the end of the ongoing financial year.

Pallavi Munankar, research analyst, Geofin Comtrade, said, “Supply disturbance due to nationwide strike of transporters for past few days provided recent upside in sugar prices. Firmness in overseas prices also helped prices on domestic platform to move in northward direction. Also, improved demand for sweetener from retailers and bulk consumers with series of major festivals ahead like Dusshera, Diwali etc. also supported sugar prices.”

Indian Sugar Mills Association (ISMA), in its first advance estimate for sugar season 2015-16, has estimated production of 270 lakh tonnes, which is 10 lakh tonne lower from its preliminary estimates released in July, 2015.

This cut in estimates is due to below normal rainfall during monsoon season in July and August in Maharashtra and Karnataka.

“For 2015-16, the supply of sugar in domestic market would be 366 lakh tonnes. It is expected that the demand for Indian sugar export may be high in the current year as El Nino phenomenon may affect sugar production and crushing in Central America, Thailand, the European Union. Exports from the country may double this year to 22 lakh tonnes from 11 lakh tonnes last year. The domestic consumption of sugar, may increase to 260 lakh tonnes from 251 lakh tonnes last year,” said, Riteshkumar Sahu, research analyst, Agri Commodities, Angel Commodities Broking.

What a careful investor needs to do, since sugar is an international commodity, is to check out the factors that can hamper the production of sugar in top producing countries like Brazil, India and Thailand. The other factors investors should watch out for is the weather pattern like weak monsoon rains, El Nino phenomenon or excessive dryness, which hamper the sugar production and its crushing. The demand from the top sugar importing countries likes the US, Germany, UK and China are also important factors that can affect prices.

Government policies – regarding assured cane prices for farmers, ethanol blending, export subsidy and norms as well as currency movement also play a big role in determining artes and supplies of sugar in the world market.
“In order to take a medium term view on the prices, one needs to analyse country by country supply and demand scenario and previous stocks available to know where the prices are headed going forward. If carry forward stocks are less and a drought situation arises in any of the top sugar producing countries, prices will rise. Sugar prices generally have 3 to 5 years bull bear cycle,” said, Jimeet Modi, CEO, SAMCO Securities.

International Sugar Organization (ISO) predicted global sugar market to slip into a deficit after enjoying multi-year surpluses. It projected a deficit of around 2.5 million tonnes in 2015-16 and forecast more than double deficit of 6.2 million tonnes in 2016-17.

According to some market experts, prospects for a strong El Nino could provide a direction to sugar, which is currently recovering fast from its record lows in 2015. One needs to keep an eye on production news from Brazil, India and Thailand as there is a possibility of extreme weather related activity like floods, droughts or other events. The production cut and government policies in favour of ethanol usages may provide much needed upside shock to sugar prices, in a scenario of global glut. Rising ethanol demand in Brazil may be a bullish sign for the sugar as the mills may produce more ethanol than sugar.

In another development, market participants or hedge funds also have switched their net positions into positive territory for the first time since June last year, according to Commodity Futures Trading Commission (CFTC) data release last week.

Market experts are certainly bullish on sugar. “In the domestic front, there is still hope that additional policy decisions on sugar export sops, creating buffer stocks, mandating ethanol blending to 5 per cent in petrol and linking cane price to sugar may surge sugar prices from the current level of Rs 2,620 a quintal to touch Rs 3,000 per quintal by March end,” said Sahu.

Jayant Manglik, president, retail distribution, Religare Securities, said, “As understood from market reports and trade talks, demand for sugar is likely to remain stable while supplies are likely to be limited. Exports could look up.

The current overall situation points to prices in excess of Rs 3,000 per quintal by March 2016 end”.

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