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Domestic sugar producers are clamouring for the imposition of import curbs on the sweetener. With freeing of trade in April, home-grown sugar-makers fear that the supply glut in global markets will have a cascading effect on their realisation.
Prices at home have declined over the past 10 months from a two-year peak achieved in August 2012 on expectations of a bumper crop in 2012-13. The commodity is currently trading at Rs 2,980 a quintal.
Intermediate downtrend
Following a sharp 27.3 per cent rally in July-August 2012 to a two-year high of Rs 3,688 a quintal, prices of Indian sugar have petered out and have been on an intermediate downtrend, forming lower peaks and troughs. An analysis of spot prices on the MCX indicates that the short-term outlook for the sweetener is sideways, in the range of Rs 2,950-3,050/quintal. Key support is seen at the Rs 2,820/quintal level, while resistance comes into play at Rs 3,100/quintal.
But the imposition of import curbs could significantly alter the situation. The planted area for sugarcane is set to fall short of the 5 million hectare-mark in the 2013-14 season, compared with 5.2 million hectares in 2012-13. Reliable estimates have pegged the area under cane cultivation at 4.9 million hectares.
In particular, cane planting in Maharashtra has been affected by acute moisture stress in key growing areas. There has also been a reduction in the area under sugarcane in Karnataka.
May fall short
If the monsoon is weak this year, aggregate cane production could dip below the previous year’s 336 million tonnes (mt) and may even test the 300 mt mark. In such an event, there is likely to be diversion of cane for gur and khandsari production, as seen in years of cane shortage. Keeping the option of imports open could be the only way of protecting consumers, even more so with decontrol of the sugar sector on April 4.
In global markets, the long-term trend in sugar No 11 has been down ever since peaking at 35.31 cents a pound in February 2011. The commodity is currently trading at 16.57 cents a pound. The short- and medium-term outlook appears weak, with the commodity seeing key resistance at the 18 cents/pound level, as well as 19 cents/pound. Key support for the sweetener is only seen at 15 cents/pound and thereafter at 13.75 cents a pound.
A projected surplus of 3.9 mt globally in the 2013-14 season has depressed global sugar prices in recent times. The surplus is despite a fall in sugar production from a record 185.7 mt in 2012-13 to 182.8 mt in the current crop year.
But consumption is expected to grow 2 per cent in 2014 to 177.9 mt, the fastest pace since 2008. What is more, the world’s largest producer, Brazil, is reportedly considering diversion of significant quantities of sugar for ethanol production. This could have a bearing on the demand-supply dynamics as well.
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