Sugar prices likely to stay low

MARKET OUTLOOK

Increase in free sale quota to keep market prices down.

Sugar prices are likely to remain subdued in the coming week due to a host of reasons, particularly the increase in free sale quota of sugar by 0.3 million tonnes for June.

The free sale sugar quota of 1.6 million tonnes for June is the highest in the last five years. The June quota for the last four years were as follows-1.3 million tonnes (2006), 1.1 million tonnes (2005), 1.5 million tonnes (2004) and 0.95 million tonnes (2003).

The government has decided to allocate a higher quota for June to maintain the retail prices of sugar in the open market. The decision also shows the government's unwillingness to take any chances in its efforts to control inflation. Sugar has a weightage of 3.62 per cent in the wholesale price index (WPI), higher than steel (3.2 per cent), diesel (2.02 per cent) and cement (1.73 per cent).

"Sugar prices that are currently ruling at Rs 1,350 per quintal (ex-factory) in Uttar Pradesh is likely to fall by Rs 20-30 over the next few days due to higher quota," said a UP sugar miller.

Moreover, the record production of sugar in the 2006-07 (October-September) sugar season continues to exert pressure on sugar prices. The country is estimated to have produced sugar in excess of 27 million tonnes this time, about 40 per cent over the last year's 19.2 million tonnes, even as consumption remained at 19-19.5 million tonnes.

Sugar prices are already at an all time low due to the surplus production, with those in major markets even lower than the levy price (price at which the government buys sugar from mills for its public distribution requirements).

The government's decision to provide a subsidy of Rs 1,350 per tonne for mills in the coastal areas and Rs 1,450 for those in the non-coastal areas for sugar exports under the open general licence and the creation of two million tonnes buffer have failed to lift sugar prices.

The 5-6 per cent depreciation in the value of dollar vis a vis the rupee has also impacted sugar exports, whose realisations are down by 5-6 per cent.