Sugar stocks up on hopes of stimulus

Shares of major producers gain between 8% and 13%

Sugar stocks on Friday rose sharply on the hope of revival of industry fortunes and increase in spot prices.

This followed Food Minister Ram Vilas Paswan’s assurance of a revival package for the sector. He had said the government was considering raising the duty on imported sugar.

Shares of all leading producers, such as Shree Renuka, Balrampur Chini and Bajaj Hindusthan, gained between eight per cent and 13 per cent following the minister’s comment. The head of  large private sugar mill said, “A rally of 10 per cent in sugar prices in the open market cannot be ruled out if the government takes this move.”

Mills have been demanding that the government raise the import duty from the current rate of 15 per cent to 40 per cent. They say although imports are not happening, a lower duty is a barrier to their price realisations. The spot sugar price has not seen an impact yet but in the futures segment on the National Commodities and Derivatives Exchange, the sugar price had risen two per cent in the past five days, expecting some revival in sentiment.

More than import duty support, the industry is hopeful that the assurance of increasing the subsidy for sugar exports will be helpful. Paswan said on Thursday that the plan was to fix a subsidy for two years instead of revising it every two months. For June-July, the subsidy might be raised to Rs 3,300 a tonne instead of the present Rs 2,200 a tonne.

The industrialist quoted earlier said if announced immediately, this would result in increasing exports, helping improving their realisations. At present, most mills say their ex-factory prices are 10 per cent lower than their cost of production.

“We have to keep farmers’ interest in mind and have to ensure that sugar mills are in good financial health to clear Rs 11,000 crore of arrears to cane growers,” Paswan had said.

India is the world’s second largest producer of sugar, after Brazil. Analysts, however, say the increase in import duty will only be mildly positive for sugar companies. “Domestic production is high, while Brazil’s production is low this year,” said independent stock market analyst S P Tulsian. He also said a rise in import duty will also hit import of raw sugar and negatively impact sugar refining.