The Hindu Business Line : `Supply concerns driving sugar prices higher'

The road ahead
There is extreme shortage of white sugar despite good crop outlook in many countries.
EU reforms to result in short supply of subsidised sugar, which was earlier dumped in the world market.
However, fund managers here do not foresee any dramatic rise in domestic prices given the bumper crop outlook for UP, other producing States.

Kolkata , May 16

Widespread concerns notwithstanding, the Indian Sugar Mills Association (ISMA) believes that the recent surge in global sugar prices has little co-relation to the rise in prices of crude oil and the resulting rise in demand for ethanol as auto-fuel.

According to Mr S.L. Jain, Director-General of ISMA, the current high in sugar prices is primarily guided by supply concerns arising out of the WTO-guided sugar sector reforms in the EU.

Good crop outlook

"Irrespective of a good crop outlook in many countries, there is an extreme shortage of white sugar," Mr Jain told Business Line. According to him, white sugar prices, which touched an all-time high on May 12 at $495 per tonne, were up by $10 from the previous day. The corresponding price a year ago, was $275 a tonne," Mr Jain said.

According to him, reforms in the EU would result in short supply of 4.5-5 million tonnes of "subsidised sugar which was earlier used to be dumped in the world market".

As the supply concerns force sugar prices up, countries such as Brazil, which is a major user of ethanol as auto-fuel, are looking for lesser diversion of sugarcane to ethanol production.

In other words, as sugar prices have become comparatively remunerative, the reverse trend has set in in Brazil, which is expected to ease the supply concerns. Moreover, according to ISMA, sugarcane is not the only source of ethanol. In India, the ethanol programme is so far based on use of molasses, which should be sufficient to meet 80-85 per cent of the demand in the future. A small 15-20 per cent of the demand for ethanol will be met from sugarcane beginning next year.

Leading commodity market fund managers, however, contradict Mr Jain's views. "The bullish trend in oil prices is paving way for gradual move to ethanol as auto-fuel which is definitely one of the reasons behind the surge in sugar prices," says Mr Naveen Mathur Head-commodities, Religare Comdex Ltd.

Indian market

Though sugar prices are also on a steady uptrend in Indian markets, fund managers are not expecting any dramatic rise in the coming months. According to Mr Ajay Agarwal of East India Commodities, keeping in tune with a bumper crop outlook for sugarcane in Uttar Pradesh and other producing States there is no supply concern in the market at this juncture.

More Stories on : Sugar | Non-conventional Energy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page