Shares of leading sugar companies have been riding high ever since the government has said that it may weigh raising the sugar export quota for the current marketing year after assessing domestic production in January. Sugar stocks rallied up to 20 per cent for a second straight trading day on Monday, December 19.
Dalmia Bharat Sugar and Industries (Rs 440.55), Rajshree Sugar & Chemicals (Rs 66.70), Sakthi Sugars (Rs 34.55), Dhampure Speciality Sugars (Rs 34.80) and Simbhaoli Sugars (Rs 33.80) zoomed 20 per cent on the BSE in today’s intra-day trade.
Dhampur Sugar Mills, KCP Sugar & Industries, Ugar Sugar, Avadh Sugar, Mawana Sugars, KM Sugar Mills and Vishwaraj Sugar Industries, meanwhile, rallied between 10 per cent and 19 per cent. In comparison, the S&P BSE Sensex was up 0.23 per cent at 61,476 level.
In November, the government had allowed exports of 60 lakh tonnes of sugar on a quota basis till May 31, 2023.
Food Secretary Sanjeev Chopra recently said the ministry will assess the production in January and then decide whether to raise the quota or not.
Sugar, being an agro-based industry, is prone to vagaries of monsoons. Also, as sugar is an essential commodity, it faces high levels of government intervention. Furthermore, the sugar business is inherently a working capital-intensive business given the seasonality in the industry.
Thus, the government has taken a slew of measures in the past couple of years that have changed the dynamics of the sugar industry. The introduction of minimum selling price of sugar in 2018 addressed the key issue of fixed raw material price and market-linked finished product price, making spreads less volatile to sugar cycles, said India Ratings and Research (Ind-Ra).
“Furthermore, the export subsidy helped the industry achieve exports of 7.1MT in sugar season (SS) 2021 (SS20: 5.9MT) despite unremunerative international prices, and supported domestic balance. While the subsidy was not extended post SS21, the robust international prices are likely to have resulted in record exports of around 11.2MT in SS22, which, in conjunction with cane diversion, would be sufficient to reduce the country’s inventory levels meaningfully. While the export quota has been reduced to 6MT in SS23, increasing cane diversion would keep inventory under check and support sugar prices,” it added.
India’s production in the 2022-23 sugar season (SS ), which began in October, is estimated at a record 410 lakh tonnes before considering diversion towards ethanol.
According to estimates released by the Indian Sugar Mills Association (ISMA), this is higher by about 5 percent compared to the 392 lakh tonnes produced in the 2021-22 sugar season.
India is the world’s second-largest exporter of sugar after Brazil. Any disruption in export quantities from these nations can push up global sugar prices significantly, said analysts.
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