The Hindu Business Line : Sugar stocks turning sweet

Despite the uncertainty over lifting of the ban on exports by the Government as promised this month, sugar sector stocks have increased between 5 and 10 per cent week on week.

While Uttam Sugar ended at Rs 192.13, up 8.28 per cent over last week; Simbhaoli Sugar closed at Rs 75.80, up 8.91 per cent; Shree Renuka Sugar at Rs 610.85, up 5.73 per cent; Dhampur Sugar at Rs 119, up 10.80 per cent; and Balrampur Chini at Rs 101.05, up 9.01 per cent on the BSE.

When contacted, Mr Prakash Naiknavare, Managing Director, Maharashtra State Co-op Sugar Factories Federation, told Business Line that the export ban was likely to come up for review soon. "Lifting the ban on exports will send a positive signal to the industry. We have reason to believe that it will be reviewed after Diwali and as such, expect an announcement around mid-November," he said.

According to him, the ban should have been lifted earlier.

"When prices were ruling at $487 per tonne f.o.b, we would have realised around Rs 2,100 per quintal, ex-mill. However, with a decline in international prices, prices are currently ruling at around $364 per tonne f.o.b. Our realisation would be around Rs 1,700 per quintal, ex-mill, which is almost in line with our domestic prices. So any export benefit has already been diluted," he said.

Mr Naiknavare estimated all India sugar production at around 22.5 mt (million tonnes) for 2006-07.

Concerned over rising prices and on recommendation of the Cabinet committee on prices, the Union Government banned the export of sugar till March 31, 2007. However, on July 16, the Union Food and Agriculture Minister, Mr Sharad Pawar, said the Centre planned to lift the ban on sugar exports from the beginning of the next cane-crushing season, that is, in October this year.

Industry sources maintain that the ban has resulted in surplus stock of sugar, which has had a bearing on domestic prices. Prices are currently ruling at around Rs 1,800 a quintal (100 kg).

Festival demand

Export ban or no, there is some market talk of sugar prices heading northward, propelled primarily by festival demand; but industry experts believe otherwise. "Diwali sales have already been effected, and hence the so-called festival demand is unlikely to impact prices. However, on account of extended monsoon, harvesting has been delayed. This in turn has delayed crushing. This chain of events may temporarily prop up prices," said an industry representative.

Mismatch

Commodity observers maintain there is mismatch between cane output estimate of Agriculture Ministry and sugar production estimate of the industry.

Based on cane output of 283 mt (government estimate), observers estimate sugar production for the next season to rise to about 21 mt (19.5 mt), allowing for higher recovery etc.

On the other hand, some industry representatives suggest that sugar production in 2006-07 would be 23-24 mt. But this scale of production is matched by cane output estimate.

"Historically, there is a strong correlation between cane output and sugar production. Anything between 70-100 mt is diverted for sweeteners such as `gur', `khandsari' and other purposes. In 2005-06, the final cane output estimate of the Agriculture Ministry was 278 mt and sugar production estimate of the Food Ministry was 19.5 mt.

This year, 2006-07 cane output is up by a mere 5 mt. We do not have enough cane output on current reckoning to produce the estimated 22.5 mt. To produce this level of sugar, our cane output should be in excess of 300 mt," argued an industry source.

Sources said that cane output data, varying estimates etc are sending distorted signals to the market. "Till such time there is clarity on this issue, one may not see any substantial gain in prices from current levels," added analysts.

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