The Hindu Business Line : `Sugar will recover; cotton demand on the upside'

Where are commodity prices headed? Mr Ashok Mittal of Karvy Comtrade and Ms Sudakshina Unnikrishnan, Manager Of Commodities Research Of Barclays Capital give an outlook on commodities.

Mr Mittal believes that sugar prices in India may have bottomed-out. He expects sugar prices to recover to Rs 1,600-1,700 per quintal levels. Ms Sudakshina Unnikrishnan believes that the global sugar price outlook continues to be weak. She adds that the outlook for cotton is positive, led by demand from China and India.

Excerpts from CNBC-TV18's exclusive interview with Mr Ashok Mittal and Ms Sudakshina Unnikrishnan:

Sugar stocks have bounced back a little but there's uncertainty about where the sugar prices are headed.

Mittal: The basic reason why behind sugar stocks are seeing a down fall is that prices have dropped continuously in the last 9-10 months or so due to higher crop expectations and higher production expectations in India and global markets. But sugar prices look as if they are almost at the bottom level because most of the sugar mills are not ready to sell below the Rs 1,350-1,400 levels in India.

But, sugar stocks should now be moving upwards because they have been hammered. We do not see sugar prices fall much from the current levels and the same can be said for the sugar stocks as well. In three to six months, sugar stocks will definitely tend to move as per the sugar prices.

What is the global picture like and do you expect prices to recover a lot? Is it lucrative for a company to look at exporting sugar at this point?

Unnikrishnan: The global picture continues to look rather weak for sugar prices, the big reason being the strong rebound in the global slide. The last strong rally in global prices saw many different factors in place to support sugar. There were strong speculative sentiments, as well as a lot of speculative money pouring into the sugar futures. This year we are seeing a strong rebound in supply from India, Brazil, Australia, and Thailand. All of that shows a pretty amply-supplied sugar market. That is putting a lot of bearish pressure on prices, which is why a lot of range trading is happening for the last few months. If there is any sort of price risk, it is to the downside from here, possibly not too much risk further down.

Can the domestic market pull back? If so, to what extent? And what quantum difference does it make to some of the sugar stocks?

Mittal: If you look at the sugar stocks and the kind of price movement there, you will notice that the commodity was at about Rs 2,000, from where it has come to Rs 1,400, which means a Rs 600 downside per quintal. On Rs 2,600, it is about 30 per cent or so, whereas stocks have fallen more than that, about 50 per cent in the last couple of months. So the same kind of movement will be expected when the sugar prices bounce back.

From Rs 1,350-1,400 levels, we expect sugar to go back to between Rs 1,600 and Rs 1,700 per quintal range. If that goes up by 20 per cent, I will definitely expect the sugar stocks to move up more than 20% — might be about 25-30 per cent from these levels.

Government was expecting to export about 9-lakh tonnes from India, whereas only about 90,000 tonnes were actually exported but we should also see that this 9-lakh tonne is also about 4.5-5 per cent of our total production. Even if exports do not happen, or even if it happens to the extent of 9-lakh tonnes, it will not affect the overall scenario to a larger extent.

What is the call on cotton as that has a material impact on textile stocks here?

Unnikrishnan: I think the outlook for cotton is quite positive. The biggest users in the world are basically China, India and Pakistan — all of who continue to show very strong consumption trend. China's textile industry has been fuelling increased cotton demand; its cotton imports have been rising very strongly. Overall, the supply and demand fundamentals in the global bases for cotton are very supportive. India's huge excess has been rising very strongly and trends seem to suggest that demand will continue to be very strong. That should definitely give some upside potential to prices.

What are you expecting from rubber, as it will impact tyre stocks, and prices are moving a lot higher this financial year?

Mittal: In November-December, we saw rubber prices moving up very fast — they went above Rs 112 or so; this was almost a lifetime high as far as the Indian rubber markets are concerned. In the futures segment too, after that there has been not enough correction happening to rubber prices. Rubber companies contribute about 55-60 per cent to the total rubber demand in India and have negative correlation with the spot rubber prices. So, we expect rubber prices to go up, but at the same time in the last eight to ten months, we have seen that the correlation is not very high; in sugar too, the correlation is not very high. So even if rubber prices go up by about 8-10 per cent, they will not impact the tyre companies very significantly.

More Stories on : Interview | Sugar | Cotton

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

Stories in this Section
NMCE posts record physical delivery in rubber, cardamom

Demand outstrips supply in organic foods, drinks

Wheat policy needs re-sowing

Spot rubber gains sharply

Good demand at Kochi tea sale

Demand pushes up maize futures

Cheap imports

Weather insurance for small coffee growers

Rise in Vietnam prices pushes up pepper futures market

`Sugar will recover; cotton demand on the upside'

CII meet on farmer development

Quest for the perfect rose