Maharashtra and Karnataka have already rationalised sugar-pricing policies. Uttar Pradesh is expected to follow suit. Other states, too, have begun rationalising their policies.
This has renewed foreign investors’ interest in the Indian sugar sector, as things seem to be looking up. The potential of the Indian sugar industry can’t be overstated: there has been significant progress in terms of improvement in sugarcane varieties, ethanol sector and productivity. The new pricing policy has infused competitiveness in the industry.
Kamal Jain of Kamal Jain Trading Services argues that Singapore-based agri-business major Wilmar International’s 27.5 per cent stake buy in Shree Renuka Sugars is a pointer to the fact that better things are in store for the industry. As per the deal, Wilmar will take joint control of the company along with its promoters and help it reduce its huge debt to Rs 2,500 crore.
Industry estimates show India has so far exported about seven to eight lakh tonnes of raw sugar this sugar year. Total exports are projected to be between 1.2 million and 1.4 million tonnes. Sugar mills produce raw sugar only when there are orders, as it has a shelf life of only about two months. Most of the raw sugar is exported, as domestic demand is negligible. As the price of white sugar crashed to Rs 23 a kg (ex-mill) in the domestic market, some millers shifted to raw sugar for better realisations. The ex-mill price of raw sugar at the beginning of the season stood at Rs 24 a kg and mills expected to realise about Rs 28-29/kg after availing the subsidy. With exporters now quoting lesser prices, millers are hesitating to sign new contracts.
Jain said it remains to be seen if India will have enough surplus for exports as sugar output in India, the largest producer after Brazil, may tumble to the lowest in four years after excessive rains in the biggest sugarcane-growing regions cut yields while some farmers diverted crop to make local sweetener. Production will probably drop by 6.4 per cent to 23.5 million tonnes in the sugar year that began on October 1, the smallest since 2009-2010. That’s less than the 25 million tonnes forecast in September by the Indian Sugar Mills Association, which is set to revise the outlook in the next two weeks. Lower output will trim the biggest domestic reserve in five years and reduce surplus for exports, helping cut a global glut and record losses at producers.
Other analysts look at these issues from a different perspective. They say lower domestic output is actually good for prices and it is already affecting price trends. There is a feeling that government subsidy for production of raw sugar will boost export of raw sugar from India.
New deals dried up after the Union cabinet approved subsidy for raw sugar, as global buyers and local exporters quoted low prices. Sugar mills, which expected to get better realisation from exports than domestic sales after the subsidy, are not willing to sign deals at lower prices.
On Thursday (February 20), sugar prices climbed by Rs 56, or 2 per cent, to Rs 2,850 a quintal in futures trading at NCDEX, as participants engaged in speculative trade on a 13 per cent drop in output so far this year. Likewise, the sweetener for delivery in March traded Rs 17, or 0.61 per cent, higher at Rs 2,822 per quintal in 20,050 lots.
Market analysts attributed the significant rise in sugar prices in futures trade to speculative positions created by participants after output fell on delayed crushing. The announcement of Rs 3,333 per tonne subsidy for export of raw sugar is expected to boost overseas sales and help the cash-starved industry to pay arrears to sugarcane farmers.
Souce:- mydigitalfc.com
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