Sugar price jumps by 3.5% on expectation of reduced supply

Sugar price jumped by 3.5 per cent in spot Agricultural Produce Market Committee (APMC) in Vashi, near Mumbai, in anticipation of reduced supply from mills following a cut in the quantity of sugar released by the Centre for July 2018.

After 2.1 million tonnes for June, the government on Friday allowed mills to sell 1.6 million tonnes of sugar for July against traders’ expectations of over 2 million tones - close to the monthly average release of nearly 2.13 million tonnes.

Reacting to the proposed reduction in supply, the benchmark S 30 variety of sugar price jumped by ~100 a quintal to trade at ~3,020 to 3,070 a quintal in the benchmark Vashi APMC market on Saturday.

Such a sharp jump in the daily price of sugar has not occurred in the last few months and the reduced quantity of sugar release by the Centre has lowered mills’ cash liquidity resulting in worsening of farmers’ cane arrears problem. The current selling price works out to be ~500 lesser than its average cost of production of ~3,500 a quintal.

“The current month quota is insufficient to meet consumers’ demand despite being lean season with lack of festivals and wedding or any other such occasions in this month,” said a senior official of a large sugar mill, confirming that the quantity of sugar released is 23 per cent less than the average monthly consumption of 2.13 million tones

According to industry sources, the government’s move has taken into consideration the Maharashtra sugar mills that were unable to sell their allotted quantity in June due to subdued prices. Many mills in the state, India’s second largest sugar producer after Uttar Pradesh, were forced to sell their inventory at less than the government’s fixed minimum selling price (MSP) of ~2,900 a quintal. Industry estimates suggest that about 200,000 tonnes of sugar remained unsold.

“In June, Maharashtra sugar mills could not complete the sale of their allotted quota at ~2,900 a quintal. The quantity of sugar unsold is estimated to be 200,000 tonnes (lying) with mills in Maharashtra,” said Praful Vithalani, Chairman, All India Sugar Trade Association (AISTA). Vithalani says the allotted quota is reasonable because soft drink, ice cream and other major industries have lowered their consumption of sugar. “Normally, consumption of chilling cold consumer products goes down with the onset of the monsoon,” he added.

Sanjeev Babar, former Managing Director of the Maharashtra State Cooperative Sugar Factories Federation, however, feels that quantity of sugar released August onwards will remain high at over 2.4 million tonnes because of increase in demand in the festive season.

Shrawan month with an increase in consumption of sweets. Hence, the government should release above 2.5 million tonnes from August onwards,” he says.

Reacting to the proposed reduction in supply, the benchmark S 30 variety of sugar price jumped by ~100 a quintal