The Hindu Business Line : Deficit monsoon may support sugar prices

Sugar stocks received a fresh lease of life on Monday’s trading on the back of expectations of a downward revision in sugar output the next season, October 2009-September 2010, which could trigger a fresh rally in the commodity. Stocks of Bajaj Hindusthan, Balrampur Chini Mills, Shree Renuka Sugars and a host of other players saw fresh buying interest emerge.

However, the downward revision in output is not entirely good news for all the players.

With the monsoon playing truant in key producing states such as Maharashtra and Uttar Pradesh, industry sources have now indicated that the output for the next year may stand at about 175 lakh tonnes, instead of 200 lakh tonnes originally estimated. Though that represents a substantial improvement of 19 per cent over the current year’s production of 147 lakh tonnes, it may not be sufficient to bridge the deficit, with annual consumption at about 220 lakh tonnes.

Bullish forecast

That strengthens the bullish prognosis for domestic sugar prices, which have already risen 16 per cent from their levels even in March this year.

Higher sugar prices will mean better realisations for sugar producers but not all producers would be able to capitalise on the drop in output.

Severe shortfalls in cane supply in the current sugar season has contributed to sharp escalation in cane prices and curtailed the crushing season for the North-based mills, prompting them to idle capacities for more months. Only mills that managed to procure sufficient cane and build inventories of sugar were able to take advantage of the recent surge in domestic sugar prices.

Seen in this backdrop, a persisting shortfall in output in the next season would only serve to heighten competition for cane; deficit rains in July could also reduce recovery rate of sugar. Both developments could trim profit margins for players.

Under these circumstances, sugar mills, which have refining capacities that can process imported raw sugar, may be best placed to capitalise on the buoyancy in domestic sugar prices.

Raw sugar imports have recently been made duty-free. Shree Renuka Sugars, EID Parry, Bannari Amman Sugars are some of the likely beneficiaries of the trend.

More Stories on : Stocks | Sugar | Climate & Weather

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

Stories in this Section
DSP BlackRock files for long/short fund

Investors’ gain is distributors’ loss

Budget hopes drive up railway-linked stocks

Deficit monsoon may support sugar prices

Kolkata firms buy ECE shares

JM Fin net down 82% in March quarter

HDIL, Reliance shed open interest

Day Trading Guide

Automotive Axles (Rs 150.9): Buy

UCO Bank may raise Rs 500 cr via follow-on public offer