Wholesale sugar prices rise 14% in December

Exporters lose parity, price may fall once volume pressure increases in a week or two

There is some good news for sugar mills and shareholders of sugar companies, as wholesale sugar prices jumped 14 per cent in December.

One reason is stock building by traders and stockists, amid fear of a price rise after the government’s decision to raise cess by Rs 100 a quintal. Also, there were reports of a decline in production this year on lower availability of cane for crushing.

The benchmark M30 variety was quoted at Rs 3,200 at Navi Mumbai's main wholesale market on Friday, as compared to its prevailing price of Rs 2,812 a qtl at end-November. The S30 variety was Rs 3,100 a qtl on Wednesday as against Rs 2,697 a qtl on November 30.

The price rise has surprised all stakeholders, expecting a subdued price trend due to new-season output and carryover stock (7.5 million tonnes) from last year. Despite a number of incentives offered by the government to bring the industry back on track, experts were expecting prices to start moving up only towards the end of the crushing activity in April.

Normally during the peak cane crushing season in December, sugar prices move down, on expected supply of new-season output. Indian Sugar Mills Association (Isma) had revised its earlier production estimate of 28 million tonnes this crushing season to 27 mt due to drought in Maharashtra, the country's largest producing state.

While the drop of around 1.3 mt this year (output was 28.3 mt last year) might not impact the domestic situation unduly, there is an expected drop in cane production in 2016-17. “A prolonged El Niño impact might adversely affect cane production in the coming year. Besides, an aggressive sugar export strategy, with declining domestic production, is likely to mount pressure on domestic prices from the 2016 summer,” said an Assocham study.

Sanjiv Babar, managing director of the Maharashtra State Federation of Co-operative Sugar Factories, estimates cane output in Maharashtra to decline by 10-15 per cent this year on crop damage due to deficient rain in the recent monsoon. Consequently, mills are likely to close early this crushing season.

On December 12, a Sugar Cess (Amendment) Bill was passed bh Parliament. It empowers the government to raise the ceiling on cess from the existing Rs 25 a qtl to Rs 200 a qtl. At present, the central government levies a sugar cess of Rs 24 a qtl. Broad expectations are that the government would raise cess by Rs 100 a qtl to garner Rs 2,500 crore to fund the sugar production incentive of Rs 4.50 a qtl directly to farmers.

The price rise, however, has nullified the incentive granted for export as mills have lost export parity. As a consequence, Indian sugar mills have hardly signed any export contracts in the past month. The price has been range-bound in global markets.

IN A SPOT Sugar production estimates (million tonnes)
States	2014-15	2015-16 (f)	Change (%)
Maharashtra	9.7	9.0	(-)7
Uttar Pradesh	7.1	7.1	--
Karnataka	5.0	4.6	(-)8
Tamil Nadu	1.25	1.35	8
Others	5.26	4.95	(-)6
Total	28.31	27.0	(-)5

(Source: Assocham)