Sugar stocks down on low global prices

The share prices of sugar companies declined by up to eight per cent on Wednesday on perceived oversupply in global and domestic markets. Parrys Sugar stock led the fall, with a decline of eight per cent, followed by Balrampur Chini (5.25 per cent), Bajaj Hindusthan (4.5), Triveni Engineering (4.15 and Dwarikesh Sugar (2.8).

After Morgan Stanley downgraded Shree Renuka Sugars, the latter’s stock declined 3.7 per cent. Morgan Stanley cut the rating to ‘equal weight’ from ‘overweight’ and lowered the target price on grounds of low global prices, currency volatility, uncertain domestic production, cane prices and lower exports.

According to Naveen Mathur, associate director of Angel Broking, a falling sugar price is the only reason for a decline in stock prices, as all other negative fundamentals have been floating around for at least two months. The benchmark London white sugar futures prices have lost nearly 18 per cent so far this year, translating into a 6.5 per cent fall in the local benchmark spot sugar prices quoted by the National Commodity and Derivatives Exchange.

In 2010-11, output in India is estimated at 24.2 million tonnes (mt). The government has also allowed export of 1.5 mt. The Indian Sugar Mills Association (Isma), has urged the government to allow at least 2.5-3 mt of export, to reduce inventory with mills. Jayantilal Patel, president of the National Federation of Cooperative Sugar Factories Ltd, forecast a total sugar output of 26.5 mt for 2011-12. Isma supports Patel’s forecast. But, the food ministry’s output estimate is 24.6 mt, just above the expected demand of 22-23 mt. Global sugar markets are also expected to remain in oversupply. Abinash Verma, secretary general of Isma, said, “Fundamentals have not changed in the last two months, except a drastic decline in global sugar prices. The government’s pro-active step can change fundamentals.”

Meanwhile, the government has hinted that the 500 tonnes of stock holding for bulk traders will be lifted by November if the price continues to remain around the current level, which may turn the sentiment positive, Verma added.