Short-term sweetener for sugar stocks

Date 01-Jul-2010        Source THE HINDU. BUSINESS LINE        Reporter M.R. Subramani        News Id 209

A few weeks ago, everything related to sugar looked gloomy and bearish. But such is the beauty of farm produce that things have turned around in no time. This despite projections of higher production in the next season starting October. On Thursday, sugar prices had touched a month’s high in the major markets, thanks to a few developments. The first aspect for the turnaround has been lower allocation of the sugar sale quota by the Centre. It is the Government that stipulates how much sugar a mill can sell each month. Each mill also has to offer 20 per cent of its production for supply through the public distribution system (PDS) at a price fixed by the Centre. The price is usually lower than the production cost for the mills. For July, the allocation has been cut by 40,000 tonnes to 14.5 lakh tonnes. This has, in fact, triggered a rise in prices. During the last weekend alone, sugar gained nearly Rs 170 a quintal. The other aspect that will stand the mills in good stead in the long term is the Centre planning to pay a higher price for the sugar it buys from the mills for the PDS. Reports say that it could be nearly 30 per cent. This, to some extent, should help the mills’ economics. EXPORTS TO GO UP Along with that is the development of the Centre cutting the time for export of white sugar against the import of raw sugar. The cut in time means sugar exports have necessarily to increase and this, in turn, could mean that the mills can take advantage of current steady prices in the global market. Reports from Mumbai say that the mills are not willing to offer stocks for the domestic market. Thailand sugarcane production is estimated to be 13 per cent lower next year. This offers good prospects for mills that have export obligations. The Centre’s decision last week allowing the petroleum companies the freedom to fix the price of petrol is a positive one for the sugar mills. The decision has now led to a situation wherein the mills are demanding a higher payment for the ethanol they supply for the gasohol programme. Under this programme, five per cent of ethanol will be mixed with petrol. The mills are pointing out that a higher payment will still make petrol mixed with ethanol cheaper. Hopes of the Centre conceding their pleas are bright. Apart from this, the monsoon’s behaviour has emerged as another crucial factor. Though the Indian Meteorological Department has forecast a higher-than-normal monsoon, June has witnessed 16 per cent deficient rainfall. This has led to fears that the sugarcane crop could be affected. Whether or not this leads to a rise in prices, it will surely cap the fall in the sugar prices. This means, sugar stocks look bullish in the near-term. In the long term, the monsoon’s behaviour, the Centre biting the bullet in raising the levy sugar price and heeding the mills’ plea for higher ethanol prices hold key.