India Resumes Sugar Futures Trading

MUMBAI – India Monday resumed trading in sugar futures after a 19-month gap with the contract for January delivery being quoted at a premium to the spot price. Analysts said fears of a global shortfall in the sweetener's supply will likely keep the price firm for now.

The January contract opened at 3,049 rupees ($67.5) per 100 kilograms on the National Commodity & Derivatives Exchange and was trading at 3,037 rupees at midday trading, after moving between 3,000 rupees and 3,079 rupees. Its volume totaled 17,490 metric tons.

In the spot market at Kolhapur, a major trading hub in western India, sugar was trading at 2,930 rupees per 100 kilograms Monday.

International prices are quite strong, which will help Indian mills to realize better export prices, said Veeresh Hiremath, chief analyst at Karvy Comtrade Ltd. The January contract is likely to trade in a 3,000 rupees-3,100 rupees range this week, he added.

The ICE sugar futures contract in New York Thursday hit its highest closing since early 1981 as the March contract surged 2.6% to end at 33.98 cents a pound. Markets in the U.S. were closed Friday.

India had banned trading in sugar futures in May 2009, initially for seven months, as prices surged due to a production shortfall. The ban was extended until the end of September 2010 and was allowed to lapse after hopes of higher output in the marketing year that started Oct. 1 softened prices.

Local output this year is expected to be about 24.5 million metric tons, more than enough to meet India's annual consumption of about 23 million tons and giving room for exports. Output was about 19 million tons in 2009-10, when a drought hit sugarcane yield.

The country may allow exports of 500,000 tons of sugar from January, a senior food ministry official said Friday.

Meanwhile, exchange officials said the restart of sugar futures will help both sugar producers and consumers to hedge their risk.

"The correlation between the futures contract prices and the spot market prices are high," said Parveen K. Singhal, deputy managing director of Multi Commodity Exchange of India Ltd., the country's largest commodity futures exchange by trade value. "The domestic sugar industry will definitely benefit from the re-introduction of sugar futures."

NCDEX Chief Business Officer Vijay Kumar said interest was strong among market participants as India is a key player in the global sugar market.

India is the world's largest sugar consumer and second-largest producer after Brazil.

Average trade value of sugar futures on the NCDEX is expected to be 1 billion rupees-3 billion rupees a day once the trade gathers momentum, Kumar said.

source: online.wsj