Meltdown continues, sugar prices hit new lows

In the past 7 days, prices have fallen over Rs 400 a quintal

The sugar industry is worried over prices hitting a new low of Rs 2,500 a quintal. In the past seven days, prices of the commodity have fallen by over Rs 400 per quintal from Rs 2,900 a quintal. Industry experts and traders fear if the fall continues, it will lead to a problem of non-lifting of sugar. Huge quantity of sugar is yet to be lifted and millers are being forced to sell at low prices. This would adversely affect timely payment to cane farmers.

After a speculative ex-mill price of Rs 40 a kg (without excise duty) in mid-January, today’s average ex-mill price in Maharashtra is around Rs 25 a kg, a steep 37.5 per cent drop in the last 10 weeks.

Industry sources fear that sugar prices will fall to around Rs 20 a kg and thereby jeopardise the interest of cane growers because cane price is normally 70 per cent of the ex-mill sugar price.

“There does not seem to be any fundamental reason for such a steep price decline as the government has announced lesser free sale quota in comparison with the corresponding month of last year. The demand during summer is also expected to rise. The prices in international markets has shown a steep drop from $766 a tonne in January to $486 a tonne today. This largely is the result of realistic production numbers from Brazil and India. The Indian production for the 2009-10 season in likely to surpass 18 million tonnes (mt), while that in Brazil is predicted at 33 mt,” a source told Business Standard.

Prakash Naiknavare, managing director of the Federation of Cooperative Sugar Factories in Maharashtra, however, said the central government needed to reconsider the duty exemption on white sugar.

“The market sentiments are at a low because of the fear that unabated cheap imports at $400-450 free-on-board of white sugar will flood and subsequently destroy the domestic markets. If this happens, the entire economics of the sugar industry will be in a disarray because the cane price committed or paid will be disproportionate to the net revenue. Thereby, a majority of the mills would go into red,” Naiknavare added.

Yogesh Pande, president of the Maharashtra Sugar Brokers and Merchants Association, said there was panic among traders and no one was willing to purchase sugar.

“It is pointless whether the government now imposes an import duty on sugar as traders foresee a bumper production, and we will need to export sugar in the coming months. The only solution is that sugar mills must voluntarily stop selling the commodity below the production cost,” he said.