Supply squeeze to keep sugar prices on the boil

Those hoping for a respite from deficit-driven high sugar prices next year have a long wait ahead, as tight supplies, high cane prices and expensive imports leave little scope for any substantial price correction.

Restoration in the demand-supply balance and the resultant weakening of prices could be a possibility once cane crushing starts for the new season in October. However, that too hinges on the weather gods playing fair next year.

Sugar prices rose an unprecedented 72 per cent in the Vashi wholesale market in 2009, hitting a record of over Rs 3,500 per 100 kg on November 7 and touching Rs 40 a kg in the retail markets, as drought shrunk cane output and sugar supplies.

According to government data, wholesale prices of sugar have risen 64.21 per cent over the past one year. An official with a multinational trading house said sugar retail prices may touch the Rs 40 a kg again next year and the level may even be breached during the peak demand season of May-July, as supplies would be barely enough to meet demand despite a large volume of imports.

The country produced 14.7 million tonnes sugar in the season ended September 30 and is expected to produce less than 16 million tonnes in 2009-10, as against the annual requirement of about 23 million tonnes.

Samir Somaiya, former president of the Indian Sugar Mills Association, said the country has contracted import of 3.8 million tonnes raw and white sugar so far and will need to import 2 million tonnes more to ensure regular flow of supplies, despite a carryover of 3.1 million tonnes from last season.