Monthly Prices Movement

  • Sugar prices witnessed a steady gain throughout the month at the major markets of India amid strong demand. Wholesale prices of Sugar hit a fresh peak after January 2010 amid supply crunch and increased demand today in Delhi.

  • Sugar prices remained range-bound with mostly positive cues over the past month due to fears of government intervention in case of an increase beyond Rs 40 per kg.

Ground Report

  • Indian Sugar Mills Association released its preliminary production estimates for year 2016-17 by lowering total acreages for year 2016-17 to 4.99 million hectare, down by 5.5%Y/Y.

  • Total Sugar production for year 2016-17 is pegged at 23.26 million tonnes down by 1.8-1.9 million tonnes from the 2015-16 production which estimated at 25.1 million tonnes.

  • Sugar prices rose considerably up in the international market and there seems hardly any scope of export after recent taxation on Sugar though will not impact on domestic prices.

  • The imposition of a 20% export duty by the government is unlikely to have any significant negative impact on the prices and profitability of the Sugar mills in the near term.

  • Maharashtra and Uttar Pradesh which experienced excess rainfall respectively during current monsoon season may witness better yield as excess rainfall supported cane development as well as sowing activities for upcoming season.

  • Cane area in Uttar Pradesh has increased by 11% to 2.18 million hectares.

  • Sugarcane sowing area in India so far reported lower by 4.20% with Uttar Pradesh reported higher sowing so far followed by Karnataka.

  • Sugar demand is around 25.6 million tonnes and is expected to grow at 3-4% per annum. By 2020, Sugar demand is pegged at 30 million tonnes.

Policies

  • To curb price rise in Sugar, government recently imposed 20% export duty on Sugar and withdrawn cane production subsidy to the mills.

  • Indian government restricted export duty exemption on overseas shipment of organic Sugar to 2,500 tonnes for the 2015-16 marketing year ending September.

  • Government has projected Sugar output to decline to 23-23.5 million tonnes in 2016-17 marketing year (October- September). Meanwhile, Indian Sugar Mills Association (ISMA) has pegged sugar output at 23.26 million tonnes for next year.

  • Government is likely to impose stock limit for Sugar millers and reintroduce monthly release mechanism may be reintroduced which was scrapped in 2013 when the Sugar industry was partially decontrolled. At present, stock holding limits are in place on Sugar dealers/traders and not on millers.

Global

  • China, the world's top Sugar buyers, imported 369,189 tonnes of raw Sugar in June, up 54 from the same period a year earlier and much more than prior months as low global prices attracted customers.

  • China's Sugar imports hit a record in 2015 but have slowed this year as global prices climbed.

  • In the international market, unfavorable weather conditions have hit Sugar production in recent months across major suppliers, leading to expectations of a fall in output.

  • After almost seven years, Sugar prices in the global markets moved up 10% to $530 a tonne in June from $480 recorded in May. The surge in prices reflects the prospects of a fall in yields in Brazil with heavy rains dampening the harvesting process.

Outlook

  • Sugar prices increased from around Rs 34,000 per tonne in June 2016 to Rs.35, 000 per tonne in July 2016 on the back of a decline in domestic production during by 11% and exports of 1.6 million tonnes.

  • Sugar prices may remain under pressure due to an estimated supply gap of 3.5-4 million tonnes in the next marketing year starting October. Sugar rates, which at present are ruling in the range of Rs 34-38/kg, may come under pressure due to a likely gap in supply and demand.

  • Sugar prices are likely to stay stable till August and go up only marginally with the onset of the festival season. There is adequate Sugar supply for the next few months, although a shortage of Sugar is expected in 2017-18 season.

  • Domestic Sugar prices are also rising, which will also help spur more imports during the peak summer consumption period.

  • Sugar prices to remain firm for the next 3-4 quarters given that production is likely to decline further because of a decline in the availability of cane in Maharashtra and Karnataka.

  • Global Sugar demand-supply situation supports firm prices in the near-term, but going forward, political developments in Brazil, fluctuations in the Dollar-real exchange rate, and the size of Sugarcane crushing in Brazil, India and Thailand likely to be the main drivers of global Sugar prices.

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