Sugar prices likely to cross Rs 24/kg in Sept08

Consumers may soon have to pay more for that kilogram of sugar. Prices are expected to rise on account of low supply, compounded with the upcoming festive season over the next two months.

Sugar prices are expected to touch Rs 23-24 per kg, a level that was last seen in 2005. Prices have already risen by around 25% over the last eight weeks. The fall in domestic supply is the main reason for the price rise. Sugar prices in the retail market have increased to Rs 20-22 per kg from Rs 16-17 over the last two months. India is the world's second largest producer of sugar after Brazil. Production was 283 lakh tonnes in 2006-07, and 265 lakh tonnes in 2007-08.

However, government sources estimate that sugar production will only be around 220 lakh tonnes in 2008-09. According to estimates, the area under sugarcane cultivation has decreased to 40.74 lakh hectares from 47.51 lakh hectares the same time last year.

Sugar supply has also reduced in the international market. "Brazil has seen lower sugar supply due to increased production of ethanol from sugarcane. Last year, 45% of sugarcane was used to manufacture ethanol, and 55% for sugar. This year, 57% of sugarcane will be used for ethanol," said Vedika More, research analyst at Angel Broking Ltd. "Sugar production in the world market is expected to be 165 million tonnes, which is around five million tonnes less than in 2007-08. This will put pressure on the domestic market and prices may touch Rs 24 per kg during the festive season," added More.

The next two months will see a jump in demand for sugar on account of the ensuing festive season. "Next month is Ramzan, followed by Dussehra and Diwali. Heavy demand for sugar during these months will push domestic prices up," said Amol Tilak, research analyst at Kotak Commodities Services Ltd.

source:dna