Sugar stocks up on global price jump

Lower production estimate in Asia to keep world market in deficit for a second year

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Sugar stocks were up on Friday, following a sharp jump in the sweetener’s prices in international markets, after a forecast of a widening supply deficit.

The share price of a majority of sugar mills jumped by up to nine per cent on Friday. Raw sugar for delivery in March is trading near a 52-week high at 21 cents a pound (lb) on the benchmark InterContinental Exchange. The near-month contract, for delivery in October,has raw sugar at $20.47 a lb. A price beyond $23 a lb will be viable for export from India.

The price of sugar has also remained elevated in India, on forecasts of less production next year. After touching the highest level in a year at Rs 3,834 a quintal on August 19, the benchmark Sugar M30 variety st the Navi Mumbai wholesale market fell to Rs 3,782 a qtl on Friday, though primarily because of the government for a stock limit on mills.

“There are two basic reasons for much better sugar prices in the world. First, crops are bad in Asia, including India, China and Thailand. Second, there is no longer an artificial pressure on Brazilian producers to produce less ethanol and more sugar. In the past 12 months, the pricing policy there was changed to a free market. With oil at $50 a barrel, less than half its peak, ethanol prices are close to their highest,” said Narendra Murkimbi, managing director, Shree Renuka Sugars.

Prices abroad are getting a fillip from a deficit forecast by the International Sugar Organisation (Iso). The London-based agency had in May forecast a 3.8 million tonne deficit for 2016-17, largely because of reduced output prospects in India, the world’s second largest producer. The agency also raised its sugar deficit estimate to 6.65 mt from five mt earlier. Another global consultancy, Kingsman, a unit of S&P Global Platts, forecast a global deficit of 5.46 mt for 2016-17.

Credit rating agency CARE forecasts sugar season 2016-17 to see global sugar consumption at 174 mt, outpacing the production of 169 mt.

In the domestic market, lower opening stock in the 2016-17 season, estimated at 7.2 mt, a decline in area under cultivation of sugarcane to five million hectares (estimated) and a steady rise in consumption is expected to deplete the buffer stock, said CARE.

Sabyasachi Majumdar, senior vice-president at ratings agency ICRA, said: “While the government imposed a 20 per cent export duty in June and implemented stock holding limits in September, these measures haven’t acted as a deterrent to the increasing trend in domestic prices. These are expected to remain firm in the near term, given the tight stock position. However, these measures might dampen the prospects of a further significant price rise. In the next three or four quarters, any further increase from the current levels would depend upon expectations of production during 2016-17, mills’ own action on supplies, depending upon their inventory, and government action on price control measures.”

The government has directed mills to reduce their inventory by September 30 to 37 per cent of last year’s level and to 24 per cent by October 31. India’s sugar output is estimated at 23.5 mt for 2016-17, from 25.1 mt the previous year.