Sugar stocks buck falling market trend, as govt moves to stem price fall

Sugar stocks bucked the broader downward trend in the benchmark Sensex and Nifty on Friday, following the government's decision to impose stock holding limits to check excess release of sugar into the market and arrest a fall in its price.

While the Uttam Sugar stock surged 11.42 per cent to Rs 128.25, that of Mawana Sugars Ltd moved up by 7.68 per cent to Rs 65.20. Shares of Dhampur Sugar closed 5.5 per cent up to Rs 204.45 on Friday, In contrast, the S&P BSE Sensex shed 1.18 per cent or 407.40 points to end the day at 34005.76. Likewise, the Nifty 50 ended on Friday with a decline of 1.15 per cent or 121.90 points at 10454.95 following global moves.

There has been a series of positive moves within the sugar sector over the past few days. Firstly, the government doubled import duty on Tuesday to 100 per cent, in a move designed to curb inward shipments and arrest price fall. Interestingly, traders were fearing an import of around 1.5 million tonnes into India from Pakistan, on which Islamabad had provided an incentive of Rs 11 per kg or over 33 per cent of the current prevailing price of sugar in India. Secondly, the Union government levied a stock limit that mandates mills to hold above 83 per cent and 86 per cent of closing stock for February and March respectively, in addition to the difference between output and exports during these months.

"All these efforts have helped sugar prices stabilise if not recover during the past couple of days. We believe the government is concerned about the financial health of sugar mills. Continuing such positive steps would help sugar prices move further up in the coming days," said Vijay Banka, Wholetime Director and Chief Financial Officer, Dwarikesh Sugar Industries Ltd.

sugar chart

Sugar prices had declined by Rs 6-7 a kg since the beginning of the current crushing season in October amid fear of excess availability, following an output of 26.1 million tonnes this season -- revised from Indian Sugar Mills Association (ISMA)'s initial estimate of 25.1 million tonnes-- and 4 million tonnes of carryover stocks. This means that as against a total annual consumption estimate of 25 million tonnes, total sugar availability stands at 30 million tonnes.

Following these moves, however, the price of sugar recovered by Rs 1.50 a kg to quote ex-factory at Rs 32 a kg. The existing price, however, works out to marginally lower than the cost of production in Uttar Pradesh, at Rs 33 a kg.

Meanwhile, Union Food Minister Ram Vilas Paswan hinted on Friday that the government is considering scrapping export duty (currently at 20 per cent) on sugar to allow mills to liquidate surplus stock to the world markets. However, given that the global market is estimated to have surplus sugar this year, it would be interesting to see how India boosts exports.

"Scrapping export duty is long overdue. It will be a positive signal for the domestic market when it happens. It will reinforce the government's intention to support the domestic sugar industry and cane farmers," said Narendra Murkumbi, managing director, Shree Renuka Sugars Ltd.

Meanwhile, the Maharashtra gvernment is planning to buy two million tonnes of sugar, or about a third of the state's output, in a bid to insulate mills from falling prices.

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