Sharp Decline in Domestic Sugar Prices - Sanjay Kaul, MD&CEO, NCMSL

Amidst the din created by the Yadavs on the passing of the historic passage of the Women's Reservation bill, a sharp decline in sugar prices seems to have escaped the attention of the media and also caught the commodity participants by surprise. From a peak of Rs. 3850 per quintal in December 2009 sugar prices have declined to Rs. 3100 per quintal; a drop of over 15 per cent. A host of factors accounts for the current decline in wholesale sugar prices.

Sugar prices in the Indian market have in recent weeks shown a very high correlation with world prices (Correlation coefficient 0.96). In the international market (LIFFE) the prices have fallen sharply (Decline of 26.00 per cent) in a month to USD/MT 555 from USD/ MT 750 following news of record crop in Brazil and Thailand. Brazil is expected to produce 35.75 million tonnes against last year's production of 31.85 million tonnes and Thailand is expected to produce 7.7 million tonnes against last year's production of 7.2 million tonnes.

The big question is whether this bearish sentiment will continue for long. Domestic measures such as weekly releases have helped in keeping prices low. However, most of the sugar mills are expected to stop crushing by March 2010. The demand for sugar is expected to gain momentum with the approach of the summer season. Long term sentiments in the international markets seem to show prices will stay firm or may even go higher. India alone is expected to be short in production by over 7 million tonnes in 2010-11 (Expected Production 16 million tonnes, Demand 23 million tonnes, Beginning Stock 3.48 million tonnes). Assessing the above figures, India would be requiring a minimum import of 3.5 million tonnes for the coming sugar year. Thus, the sugar prices are not expected to come down significantly even in 2010-11, unless the global market registers a steep fall and India continues with its imports open at zero import duty. However, consumers have now got reconciled to higher market prices and sugar inflation on a point-to-point basis would remain low in the coming months due to the high base effect.

Source : Equity Bulls

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