Mumbai: Sugar companies are the top gainers in the Indian market so far this year, helped by strong sugar prices on the international as well as domestic fronts, and supported by low output.
Of the 100 top gainers on the BSE year-to-date (YTD), 19 are sugar stocks, and of these, 15 have more than doubled gains so far in 2016. The top gainer in the pack is Upper Ganges Sugar & Industries Ltd, which is up a huge 601.90% so far in 2016. Following next are Ugar Sugar Works Ltd and Oudh Sugar Mills Ltd, which jumped 361.51% and 287.12%, respectively.
“The rallying global prices globally, had driven prices domestically as well, based on sentiment. Prices got a further boost, when anti-dumping duty was imposed on sugar. The export duty also did not harm the prices as much, as global prices were really firm,” said Nishna Biyani, research analyst at Prabhudas Lilladher Pvt. Ltd.
“India largely faced deficit rainfall for two years, and the production in the key states of Maharashtra, UP and Karnataka suffered too. We did not start the year with huge inventory as earlier, due to this situation,” Biyani added, explaining the firm prices.
In a note on 27 July, rating agency ICRA Ltd said it expects sugar prices to remain firm for the next 3-4 quarters, given that sugar production is likely to decline further to 23-24 million metric tonnes (MT) in sugar year 2017 because of a decline in the availability of cane in Maharashtra and Karnataka.
Sugar year typically spans from 1 October to 30 September.
Domestic sugar prices have remained firm and increased from around Rs.34,000 per MT in June 2016 to Rs.35,000 per MT in July 2016, on the back of a decline in the domestic sugar production during SY2016 by 11% to 25.2 million MT and exports of 1.6 million MT.
“Although the monsoons are likely to be better during the current year, the impact on the output is likely to be seen only in SY2018, given the growing period of sugarcane,” ICRA analysts said.
Sugar output in India may drop to the lowest level in seven years as drought curbed planting in the world’s biggest consumer of the sweetener, Bloomberg reported on 8 July.
Production may decline to 23.3 million MT in the 2016-17 season, beginning 1 October, from an estimated 25.1 million MT a year earlier, Bloomberg said, citing the Indian Sugar Mills Association’s preliminary estimates.
Other sugar companies which have more than doubled in the period are Dwarikesh Sugar Industries Ltd, Rana Sugars Ltd, Mawana Sugars Ltd, KM Sugar Mills Ltd, Gayatri Sugars Ltd, Dalmia Bharat Sugar & Industries Ltd, Uttam Sugar Mills Ltd, Kesar Enterprises Ltd, Indian Sucrose Ltd, Rajshree Sugars & Chemicals Ltd and DCM Shriram Industries Ltd.
In the international sugar scenario too, unfavourable weather has led to erosion in sugar production in the recent months across major suppliers and there has been a resultant expectation that global production will fall short of consumption in SY2015-16.
There has been a rebound in international sugar prices during January 2016 after a period of over seven years. After a marginal decline in February, the price uptrend continued thereafter.
“The surge continues to reflect less positive production prospects in Brazil, following heavy rains, which hampered harvesting operations and affected sugar yields,” ICRA analysts had said in the note on 27 July.
Even as the global sugar demand-supply situation supports firm prices in the near term, going forward, political developments in Brazil, fluctuations in the dollar-real exchange rate, and the size of sugarcane crushing in Brazil, India and Thailand are likely to be the main drivers of global sugar prices in the near term.
