Sugar Stocks Turned Sweeter As Sugar Prices Surged

Sugar price has hit the highest level in seven years following sudden pick up in lifting from bulk consumers and lower production estimates this season. Gradually approaching towards Rs 40 per kg in the wholesale Vashi market, the benchmark Sugar M 30 variety closed at Rs 39.35 per kg on Tuesday. The sweetener has jumped by over 3 per cent in the last 10-days. Ex-mill sugar prices, which plunged by Rs 2 to 3 per kilo since the second week of November 2016 after demonetization, have started improving and are now at the levels seen a couple of years ago.

Why the rise?

Post demonetization, lifting of sugar from bulk consumers, like ice cream and soft drink makers, slowed down resulting in a sharp fall in sugar prices. However recently, trade sources say there has been a sudden surge in off-take by bulk consumers that has pushed the prices up.

Abinash Verma, Director General, Indian Sugar Mills Association (ISMA)has said in a recent report that with higher cane price announced by states of Uttar Pradesh, Punjab and Haryana, low sugar recovery being attained in the Tamil Nadu, Andhra Pradesh and other states, and lower capacity utilization in drought-affected areas of Maharashtra, Karnataka and Telangana, the all-India average cost of production of sugar during the current 2016-17 Sugar Season, will nearly be higher at around Rs 35 to 36 per kilo which is Rs 2 more than the previous year’s cost of production.

With lower off-take and sugar consumption in 2016-17, sugar stocks at the end of the current season may be higher than what was projected earlier, by 0.5-1.0 million tons. ISMA will carry out its second advance valuation for sugar production in 2016-17, later this month, based on satellite images.

Mr. Verma also said that Sugar mills should be permitted to recover at least their costs during the current season, or else, they would not be in the situation to make payments to farmers on time and would also not be in a position to repay the loans taken from Government of India including those under SEFASU and soft loans, which are due to be repaid this year.

The Estimates:

For now, traders estimate sugar price to exceed Rs 40 per kg in a couple of days in the wholesale markets and increase to Rs 44-46 per kg in retail. Industry estimates India’s sugar production at 23.5 million tons this year compared with 25.1 million tons last year.

Sugar consumption in 2016-17 Sugar Season was earlier estimated to grow at two per cent over last year, to 25.5 million tons, but will be much lower. The off-take may thus be lower to even last year’s consumption of 24.8 million tons.

Experts say that sustained healthy realizations and healthy recovery rates are likely to result in healthy contribution margins for UP-based mills, regardless of Rs 25/quintal increase in the cane price for Sugar Year (SY) 2017. With the Fair and Remunerative Price of cane for SY2017 fixed at the same level as of the previous year and sugar prices on the higher side, the profitability of mills based in Maharashtra and Karnataka is expected to improve, however, the degree of increase in absolute levels of profits could be moderated with the decline in the cane availability.

Stock movement:

LTP
Stock Name	30th October	11th January	% change
DWARIKESH SUGAR	264	398.95	51%
DHAMPUR SUGAR	123.5	168.5	36%
DALMIA BHARAT SUGAR	119.1	160.45	35%
OUDH SUGAR	109.55	135.65	24%
BALRAMPUR CHINI	116.65	142.8	22%
KM SUGAR	26.6	32.15	21%
SAKTHI SUGARS	36.2	42.45	17%
TRIVENI ENGINEERING	60.9	71	17%
MAWANA SUGARS	54.65	57.7	6%
EID PARRY	269	280.05	4%
UPPER GANGES SUGAR	361.25	373.8	3%
ANDHRA SUGARS	243.65	232.9	-4%
KCP SUGAR	110.05	86.5	-21%

 Since 30^th October, the stocks have gained well, leaving apart Andhra Sugar and KCP Sugar. Andhra Sugars share price has lost 4% while KCP Sugar share price declined by 21%. Dwarikesh Sugar share price has gained the most 51%, followed by Dhampur Sugar share price which gained 36% and Dalmia Bharat Sugar share price which went up by 35% during the period.