All eyes on India amid firm global sugar prices

The domestic sugar industry can sniff an opportunity amidst firm global prices but it’s also going through a time of uncertainty as floods in parts of Uttar Pradesh have sparked fears of a lower output.

UP is the second-biggest sugar-producing state and sugarcane fields in its western districts such as Muzzafarnagar, Meerut and Bijnore have been flooded. “Though the water level is receding, the yield and recovery of sugarcane are likely to be affected in the top-producing districts. In my view, sugarcane production in western UP could be lower than last year despite more planting this year,” said Arun Khandelwal, president, Federation of Gur Traders, Muzzafarnagar, Asia’s biggest gur (jaggery) market.

The industry is of the view that the extent of the impact will be known only after 8-10 days. “Some impact will definitely be there but it cannot be quantified,” said Arhant Jain, president (finance) at Dhampur Sugar, which owns four mills in UP.

Expectations of a lower crop in Brazil, the world’s biggest producer, are driving international sugar prices higher. They have touched a seven-month high, making exports from India viable. “The global market may not end up with a 3 million tonne surplus next year as was projected earlier due to a dry spell in Brazil. The world is watching the Indian output. If India produces 26-27 million tonnes, global prices will soften. If the output falls below 25 million tonnes, they will appreciate,” said Sunil Kakria, managing director, Mawana Sugars.

There is a possibility of exports from India. Jonathan Kingsman, chairman of Switzerland-based Kingsman, the world’s top sugar consultancy and brokerage, said earlier this month that India could export one million tonne sugar in the year beginning October. Analysts are bullish on the prospects of UP-based companies such as Bajaj Hindusthan and Balrampur Chini as they may pay a lower sugarcane price in the new season beginning October. “UP’s mills are expected to pay a much lower sugarcane price than the 2009-10 season.

Against an average price of Rs 240-250, mills may pay the state-advised price, which could be in the range of Rs 180-190 per quintal,” said investment advisor S P Tulsian. Last year, the state-advised price was Rs 165 but the price war between mills for more sugarcane drove prices to Rs 240-250. The higher price was paid in anticipation of appreciating sugar prices. Prices, however, took a beating after government intervention. If sugar prices remain at the current level of Rs 2,600-2,700 per quintal, UP’s mills will have a margin of Rs 500-600 per quintal, Tulsian adds.
 

RISING VALUATIONS
	BSE Price in Rs			Market Cap in Rs Cr
	Aug 31, ’10	Sep 28, ’10	%chg	Aug 31, ’10	Sep 28, ’10
Dwarikesh Sugar	72.80	105.10	44.37	118.74	171.42
Shree Renuka Sugars	63.75	86.65	35.92	4273.80	5809.02
Rajshree Sugar	59.45	78.20	31.54	134.89	177.44
Dhampur Sugar	59.25	77.15	30.21	319.36	415.84
Sakthi Sugars	49.00	63.35	29.29	180.32	233.13
Triveni Engineering	96.00	118.10	23.02	2475.84	3045.80
Bajaj Hind Sug	21.70	26.00	19.82	256.06	306.80
Uttam Sugar	45.30	53.80	18.76	116.74	138.64
Bajaj Hind	113.95	134.65	18.17	2181.00	2577.20
DCM Shriram Ind	74.75	86.40	15.59	130.07	150.34
Ugar Sugar	14.84	17.13	15.43	166.95	192.71
Thiru Arooran Sugars	148.00	170.20	15.00	167.54	192.67
Balrampur Chini	83.85	93.05	10.97	2176.75	2415.58
EID Parry	392.60	430.40	9.63	3394.03	3720.81
KCP Sugar & Inds	18.80	20.55	9.31	213.19	233.04
Bannari Amman Sugars	846.50	900.00	6.32	968.40	1029.60