Sugar stocks up on hope of duty hike

Sugar stocks rose by up to 20 per cent on Friday, on expectation of an increase in customs duty to curb cheaper imports and estimates of lesser production than previous projections.

The share price of Shree Renuka Sugars jumped the highest, to close at ~15.66. Bajaj Hindusthan and Simbhaoli Sugars surged by 9.3 per cent and 7.3 per cent, to close at ~16.36 and ~31.45, respectively.

The counters of Balrampur Chini, Triveni Engineering & Industries, EID Parry and Dwarikesh Sugar attracted little investor interest, with their share price rising one to two per cent.

The Indian Sugar Mills Association (Isma) has in a letter to the Union ministry of consumer affairs reiterated a demand to increase the import duty to 60 per cent, from the existing 40 per cent. It is believed the government might now be considering the proposal, to curb import and thereby arrest the fall in domestic prices.

Also, monsoon rain has been sporadic in major cane growing areas, prompting analysts to forecast less output than previous estimates.

The government had allowed 500,000 tonnes of raw sugar import, which the industry believes has been achieved. Due to a sharp fall in raw sugar prices globally, its import with even 40 per cent levy is viable. Taking advantage, many Indian refineries have imported huge quantities of raw sugar from Brazil. Isma has written to the prime minister's office that at least 295,000 tonnes of raw sugar were imported during June 1-15. Raw sugar prices in global markets at 12.5 cents a pound provide a ~5 a kg margin for refineries in India.

Meanwhile, the central government has raised its recommended Fair and Remunerative Price of cane by 11 per cent to ~255 a quintal for crushing season 2017-18 (beginning October 2017). This will raise the cost of sugar production proportionately.

Rating agency ICRA estimates India’s sugar production to rise by 16-20 per cent to 23.524.5 million tonnes for the 2017-18 season, compared to 20.3 mt the previous year. Earlier, the industry had thought output would surpass 26 mt on a normal monsoon forecast.

“Our estimate of consumption is around 24.5 mt in SY2018. Thus, the low closing stock levels (which declined to around 4.5 mt in SY2017 from 7.7 mt in SY2016) in the domestic market are likely to support prices in the near term. Any downside to prices from the current levels are likely to be driven by the allowance of a further import of duty-free sugar, which appears unlikely at this moment,” said Sabyasachi Majumdar, group head at ICRA.