SUGAR SPIKE

Sugar prices soar on favourable factors, including improving demand and lower production

Domestic sugar prices in India have surged significantly in recent months, reaching record high. The sugar market is experiencing a bumper cycle due to improving demand and lower production.

The deficit monsoon has only added to its fortune, as sugar prices are now trading at a six-year high.

This has also boosted the prospects of sugar stocks in equity markets, as they catch the sentiments led by expectations of higher realizations and profits in the coming cycle.

SUGAR PRICES AT AN ALL-TIME HIGH

As of August ‘23, the average ex-mill sugar price stood at around ₹40 per kilogram, compared to ₹30 per kilogram in the previous year. One of the primary reasons for the surge in domestic sugar prices is concern over production.

India’s sugar output is expected to be around 31.6 million tonnes, or 7% lower than previously estimated at 34 million metric tonnes, for the current season (October ‘22 to September ‘23), according to the Indian Sugar Mill Association (ISMA).

However, a dry period in August, particularly in the states of Maharashtra and Karnataka, has raised the risk of a further cut in production estimates. These two states account for a significant portion of India’s sugar production, making the situation even more challenging.

Additionally, the market believes that the delayed start of the crushing season has also contributed to the price hike. The crushing season typically begins in mid-October, but this year it is expected to commence in November due to delayed festivals and labour shortages. This delay has raised concerns about the availability of sugar in the market, further driving up prices.

MONSOON DEFICIT