After freeing sugar exports in India, domestic sugar prices rebounded as fresh positions were created by traders and speculators.
However, the sentiment in global market was dim as excess supply in the market teamed with Brazil's harvest season pulled international sugar prices lower.
Globally, the sugar market is bearish, said Prerna Desai, Vice President - Research at Kotak Commodity Services.
India, on Wednesday removed any restrictions on sugar and allowed exports under OGL - Open General Licence, which took local sugar prices higher in futures trade.
On Thursday, MCX May sugar contract was trading 1.78% higher than its previous close. The contract for delivery in May on NCDEX surged 0.8% on the news.
Unlimited exports is good news for the Indian markets as speculators will now pick up positions at current price levels, analysts said. The depreciating rupee would also help exporters in getting more value for their produce.
However, the global sugar markets are not very bullish after the ban on sugar export was removed, Desai said.
Most active sugar contract on ICE, the July contract was trading at $20.56 per lb, up only by 0.02%, while LISE August sugar contract shed 2.4% compared to its previous close after the news.
However, India's decision to free sugar export is not the only reason global markets have taken a hit, said analysts.
Brazil, the world's largest producer and exporter of sugar was likely to start its harvest in the first week of May. Easing supply worries is also weighing on International sugar prices today.
"This year, there have been better-than-expected exports from India, Thailand and surprising exports from Russia and Pakistan as well, which has lead to a sugar surplus in the international markets, thus bringing prices of the sweetener down," said Desai.
She said, India's decision to free sugar exports was the latest push. Marketmen and producers were expecting another 1 million tonne of export to be allowed, whereas the government decided to free exports completelyand put sugar under OGL along with rice and wheat.
But, this rise in local sugar prices in only short-term, Desai believes.
According to Kotak, area under sugarcane cultivation in likely to grow in the coming year, which will keep production higher. In the current year, India produced 26 million tonne of sugar, out of which 22 million tonne is the estimated local demand. The rest would be exported. On an year-on-year basis area under sugarcane cultivation is likely to rise, the sowing is likely to continue, Desai said.
If this holds true, then the government would continue to be in a position to allow sugar exports. If the trend continues then the global market would be in a surplus.
The long-term outlook for global sugar prices is bearish, Desai said.
"Looking at the bearish trend, although prices might not fall due to demand for the sweetener, the upside is definitely limited," she said. "Prices are likely consolidate at Rs 2,950 per 100 kg."
Indian exporters are at an advantage due to the depreciating rupee. There is also news in the market that Iran is becoming a major importer of products like oil meal, grains, etc. If Iran delves into sugar hoarding too, then a slight upside in prices could be seen, she said.
Until then, the global sugar market is bearish.