Ambiguity stays in sugar prices despite futures ban

MUMBAI: Sugar prices seem to have provided a breather amid widespread speculation of a possible fall in prices, which were found cooling off from their highs following increased supply from mills and reduced off take by bulk consumers like ice-cream and soft-drink makers.

Reports suggested that select sugar mill gate prices fell further by Rs.10 per quintal in the national capital following reduced offtake amid ample supply.

Analysts believed that the prices of sugar would not get much-affected seven though the Forward Markets Commission (FMC) had imposed a ban on Futures trading in the commodity.

Commodity analysts opined that there had been a trend in the futures trading that banning futures trade did not bring the prices down. The price rise was mainly attributed to the wide gap between demand and supply. The ban would have helped had there been a widespread speculation.

However, Indian Sugar Mills Association (ISMA) stated that the sugar production had surpassed 139 lakh tonne, as on April 15, and the situation was expected to be better than last year, which would further improve price escalation. The industry has a carry forward stock of over eight million tonnes of sugar.

According to recent estimates, the sugar industry in the country is hopeful of meeting domestic demand despite an anticipated 43% drop in production this season. ISMA estimates sugar output in the country to be around 15 mt in the current sugar season lower by 11.4 mt or 43% compared with the output in the previous year. Sugar season starts in September and ends in October.

The government expects the demand to touch 22.5mt in this season. To ensure that there is no shortage in the market, the government on had allowed release of 5.4mt of sugar for April-June 2009. The country’s sugar cane acreage is estimated to have fallen by 1 million hectare to 4.2 million hectare this year, compared with a year ago.

Figures revealed that the sugar crushing in states of Maharashtra and Uttar Pradesh stood lower comparing past year figures. The under recoveries caused shut down for many sugar crushing mills in these states.

In Maharashtra, out of total 145 mills, which had taken season 14 had closed during the early days of crushing, later the number grew larger. Compare to last year, mills in Maharashtra crushed 316.25 lakh tones of cane by February, against 363.01 lt during 2007-8.

Similarly, as on January 22, mills in UP too reduced crushing from 318.08 lakh tones to 315.13 lakh tones for the current 2008-09 season (October-September).

According to estimates from the central government, the country’s total sugar production will stand at 220 lakh tonnes (LT), based on 70 LT from UP and 61 LT from Maharashtra. These were then lowered to 204.97 LT, 62.25 LT and 57 LT respectively. The most recent estimates are 188 LT for all-India, while being 51 LT for Maharashtra and 59 LT for UP.

Estimates indicated if the combined sugar production of UP and Maharashtra end up at 90 LT – against the latest official estimate of 110 LY – the country’s total output could dip below 170 LT. Last year the output for all India stood at 263.28 LT, of which 90.65 LT came from Maharashtra and 73.19 LT from UP.

source: commodityonline