Sugar price surges 21% in just three weeks

The price of sugar has risen 21 per cent in three weeks to the highest point since March, on expectation of reduced supply from mills after the stock release limit imposed by the central government, to control supply.

The benchmark M30 variety hit the lowest of this season to ~2,762 a quintal on May 19 on a supply glut. On Monday, at the Vashi (navi Mumbai) wholesale market, it traded at ~3,341 a quintal. In Uttrar Pradesh, it is around ~3,400 a quintal.

With 31.5 million tonnes (mt) of output for the current season (it formally ends September 30), along with nearly four mt of carryover stock from the earlier one, there is a surplus of over 10 mt, given the 25 mt of estimated consumption.

The glut led to fall in sugar prices and mounting cane payment arrears to farmers. Hence, some days earlier, the central government announced a ~70-billion help package, with a proposed buffer stock of three mt.

“The current price rise is a knee-jerk reaction from the trade in response to the government package. It is unsustainable as the basic issue of a supply glut is not addressed,” said Vijay Banka, chief financial officer at Dwarikesh Sugar Industries.

The rise in price has increased mills’ ex-factory realisation. In Maharashtra, for example, the latter had had declined to ~2,465 a quintal on May 17, lowest of this season. It is now ~3,125-3,175 a quintal.

Earlier, the government had also ordered mills to export a combined two mt. Mills have ben unable to, as global prices are down. Industry sources say export orders have been only 70,00080,000 tonnes so far this year.

“The decision to impose stock (release) limits on mills is tantamount to control on sugar sales, which is not the right way to move into the future. There is no idea or proposal on rationalisation of the cane pricing policy, the main reason for all the problems of the industry,” said Abinash Verma, director-general, Indian Sugar Mills Association.

A recent study by rating agency CRISIL estimates the bailout package would clear ~91 billion over a year or 40 per cent of the entire cane payment arrears of ~220 billion.

A bumper cane crop is also expected next year, likely to mean more of glut.