MUMBAI: Buoyed by supply deficits on the one hand, and increasing demand, on the other, the outlook for sugar price is bullish. The shortfall in production is expected to continue in the coming seasons. Considering the production estimates and raw sugar imports for 2004-05, the carry-over stock is expected to be less than 4 million tonne, against the desired inventory of 10 million tonne.JR Banka, chief general manager of Dwarikesh Sugar, said, "The inventory of August 2004 stood at 5.6 million tonne. By the end of the current season in September 2005, the inventory is expected to reduce to 3 million tonne, which is inadequate."
Dr GSC Rao, executive director of Simbhaoli Sugar Mills, said, "A price band of Rs 17-18 should be maintained in this fiscal. Prices will continue to remain stable. Whatever shortfall in production is, it will be taken care of by the import of raw sugar." Against the projected output of 15-16 million tonne in 2005-06, demand is expected to range between 18-20 million tonne. To make up for the shortfall, imports of raw sugar will continue remain between 2-3 million tonne.
Sugar prices have been on a rising since early 2004. But in the last two months, there has been a decline. On the National Commodity & Derivatives Exchange (NCDEX), the April contract, which hit a high of Rs 2,029 per quintal on January 3 expired at Rs 1,768. Also on January 3, spot prices of 'M' grade sugar (the most liquid grade) hit a high of Rs 1,970 per quintal.
Spot prices have also declined to Rs 1,970 in the current month. Industry sources say that in view of the bullish outlook in prices over the longer term, it may be a good time to buy into sugar futures.
Most sugar companies have reported good numbers for the quarter ended March 31, 2005. Sakthi Sugars has reported a net profit of Rs 25.16 crore against a loss of Rs 1.05 crore in the corresponding quarter in 2003-04. Bajaj Hindustan has reported a profit of 21.45 crore, up 106.85% over Rs 10.37 crore reported in the January-March quarter last fiscal. Simbhaoli Sugar Mills also reported a profit of Rs 5.51 crore as against Rs 2.29 crore in the same period.
Due to the relaxation of the export commitment from 24-36 months, most mills imported raw sugar which they processed and sold in the domestic market where prices are at a premium in comparison with the rest of the world. This has helped to boost profitability.
"The intent was to give the supply to the market in a year when supply was short, and sell whites in a surplus year. In three years time, the industry expects the demand-supply scenario to improve somewhat," said Sanjay Tapria, director of finance at Simbhaoli Sugar Mills.
-ROUHAN SHARMA
Financial Express
Date: 22-4-2005
