Sugar: On upward spiral

With firm prices, price realisation for manufacturers is likely to get a boost.

Sugar prices have been inching up steadily since October, gaining 19.7 per cent to Rs 3,212.5 a quintal (M-60 variety) from the start of October till December 29. It is being debated that sugar may be at a risk of seeing a further upside, with resumption of futures trading.

With better cane acreage, cane production for 2010-11 is estimated at 324.9 million tonnes during the current sugar year (October-September) as against last year’s 277.7 mt, according to Angel Broking reports. The production is anticipated to be close to 25 mt, higher than the last sugar year’s 18.8 mt. Besides, demand is anticipated to be close to production levels.

Another reason for firm domestic prices are the rising international ones, with production in Brazil, the largest producer, likely to see a dip due to crops being impacted by scanty rain.

With prices on an upward spiral, the price realisation for manufacturers is likely to get a boost, and so does increasing sugarcane production. With cane acreage low last year, manufacturers had to pay up to Rs 300 a quintal for procuring cane. With better acreage, the State Administered Price set by the Uttar Pradesh government this year is Rs 205 a quintal. In Maharashtra, the procurement prices are set close to this. This is expected to reduce the costs. Retail prices, on the other hand, also remained capped. As millers held stocks with cost prices close to Rs 27 a kg in June-July, retail prices were at Rs 30-31, thus implying bare minimum margins. In the new dynamics with lower cane costs and higher price realisations, the manufacturers will enjoy better margins.

While Bajaj Hindusthan saw a surge of seven per cent in December, Shree Renuka Sugar and Balrampur Chini have gained 14 per cent each since the start of December on the back of improving prospects and resumption of trading in the futures segment recently.