Falling sales, high stocks affect sugar prices
Demand is pegged at 23.8-24 mt, down 1 mt, for 2016-17 season
Sugar sales in the country have been heading southward for some time now. Sales are seen down 1 million tonnes from the start of the sugar season in October 2016. The decline is partly attributed to higher domestic prices and partly to the effect of demonetisation when high-value notes were scrapped.
The government decision to abolish subsidy for sugar, given to poor families, which accounts for about 10 per cent of sales, also took its toll. Thanks to the dwindling sale, India is left with enough stocks. Thus there is no need for more sugar imports, feels the Indian Sugar Mills Association (Isma).
Normally, the sugar demand in India stands at nearly 25 million tonnes. But this time the sugar demand is pegged at 23.8-24 million tonnes for the 2016-17 sugar season. Isma expects sugar output for the season to reach 20.2 million tonnes, just below its previous estimate of 20.3 million tonnes. Ending stocks, seen at 4.55-4.75 million tonnes, gives India a big enough supply cushion until sugar from the new 2017-18 crop hits the market in October.
Various research agencies and market participants have also forecast lower sugar production for the second consecutive year due to drought during 2014-15 and 2015-16. Output is estimated to fall for the second straight year to 20 million tonnes in the 2016-17 season (October-September), much lower than the annual demand of 24-25 million tonnes.

Icra also estimates production to decline by around 19 per cent to 20.3 million tonnes in SY2017 against SY2016, due to decline in key sugar-producing states – Maharashtra and Karnataka – because of poor rainfall during previous monsoon seasons.
Similarly, consumption is expected to decline by 4 per cent to around 24 million tonnes in SY2017, against SY2016. With 0.5 million tonnes of imported sugar, closing stocks for the current season are estimated to be around 4.5-5 million tonnes, which would be sufficient to meet the requirement of around two months of the domestic consumption. This is still much lower than the previous year’s closing stock level of 7.7 million tonnes.
Meanwhile, to increase availability, the central government has now allowed duty-free import of raw sugar up to 500,000 tonnes, till June 2017. The Centre has also extended curbs on sugar stocks by six months for dealers and traders. At present, there is a stock limit of 500 tonnes and turnover limit of 30 days for traders in the country other than those in Bengal.
“Sugar futures have declined from its March highs on sufficient availability in the physical market due to implementation of stock limits for mills and traders coupled with enough production, particularly in UP. Sugar prices may stabilise in the coming months as government may imports more sugar this season.

According to US department of agriculture’s bureau in New Delhi, sugar production in 2017-18 is forecast to bounce back by 18 per cent to 25.8 million tonnes. The consumption forecast is higher at 26 million tonnes. Thus India may not be able to export but need to import 500,000 tonnes, which may keep the prices under check,” said Ritesh Kumar Sahu, fundamental analyst – agri commodities, Angel Commodities Broking.
Sabyasachi Majumdar, senior VP & group head, Icra Ratings, also thinks sugar prices will more or less remain unaffected in near future. “While prices declined marginally during November-December 2016 following demonetisation, it recovered to around Rs 36,500-37,000 per million tonnes in January-March 2017 due to the tight sugar stock situation. Although Icra anticipates a 3-4 per cent decline in domestic sugar consumption in SY2017, this is unlikely to affect sugar prices, at least in SY2017, as the impact of the decline in local consumption is likely to be more than offset by a higher-than-expected fall in production. After the announcement of allowance of duty-free raw sugar imports, there has not been a significant decline in prices, which are hovering at Rs 36,000-36,500 per million tonnes in April,” said Majumdar.
While healthy prices are likely to support profitability of UP-based sugar mills, the western and southern mills would continue to be impacted by low cane crushing volumes in SY2017, he added.