Cane & able: Spot sugar outshines futures
Traders have removed almost all their sugar from commodity exchange warehouses as higher prices in the daily spot market are offering a sweeter deal.
By Nidhi Nath Srinivas, TNN |
NEW DELHI: Traders have removed almost all their sugar from commodity exchange warehouses as higher prices in the daily spot market are offering a sweeter deal. NCDEX warehouses have been swept clean after sugar stocks dwindled from almost 37,000 tonne to less than 3,000 tonne in just four days.
While futures prices are around Rs 19.50/kg, the spot markets have suddenly shot up to above Rs 20/kg. If this trend continues and there is little likelihood of more sugar entering the market over the next few days, prices on the exchanges may also start rising in tandem.
According to NCDEX data, sugar stocks in warehouses dropped from 36,966 tonnes on June 2 to 3,282 tonne on June 5. On June 8, it was learnt to be at around 2,800 tonnes. MCX, with much smaller traded volumes, had 5,000 tonnes sugar in its Delhi warehouses.
The cash market has become more immediately attractive because sugar prices were much higher than the futures in supply-deficit Kolkatta market. That has prompted traders into finding a better deal by converting their demat stocks lying in exchange warehouses into physical bags for sale.
Another reason for the removal of sugar bags from exchange godowns may be the problem of getting their quality re-validated by assayers after expiry of the stocking period. “With the fuel price hike the inter state movement of stocks will become very expensive and hence the consumers have bought the stocks lying in the local private warehouses as well. This is likely to support the spot market further, futures may remain in backwardation for some more days,” say analysts at Mumbai-based brokerage Man Financial.
Meanwhile, to attract greater volumes in sugar, MCX has decided to relax its quality specifications to allow more mills to qualify for delivery. The exchange has relaxed its delivery specifications from 150 icumsa to 175 icumsa. The move is pending with the FMC for approval and may be implemented from the September contract onwards. MCX is also planning to add more delivery centres. The list may include centres like Kanpur, Kolkatta, Vijaywada and Kolhapur in addition to Delhi.
“We were finding that only one mill was making below-150-icumsa quality in UP. That was creating a hurdle for traders. Stockists were also never sure whether or not their sugar would qualify for delivery. By raising the bar, more mills would be able to qualify for delivery and thus improve volumes,” officials said.
Sugar prices continue to be a cause of worry for the government as the rise has been fairly sharp over the last few months. Even so, it has permitted STC to export 1.5m tonnes to Pakistan, in addition to the quota allotted to industry body ISGEC. Consequently, while it may ease the pressure on Pakistan’s consumers, things are still far from affordable for the desi aam aadmi.
While futures prices are around Rs 19.50/kg, the spot markets have suddenly shot up to above Rs 20/kg. If this trend continues and there is little likelihood of more sugar entering the market over the next few days, prices on the exchanges may also start rising in tandem.
According to NCDEX data, sugar stocks in warehouses dropped from 36,966 tonnes on June 2 to 3,282 tonne on June 5. On June 8, it was learnt to be at around 2,800 tonnes. MCX, with much smaller traded volumes, had 5,000 tonnes sugar in its Delhi warehouses.
The cash market has become more immediately attractive because sugar prices were much higher than the futures in supply-deficit Kolkatta market. That has prompted traders into finding a better deal by converting their demat stocks lying in exchange warehouses into physical bags for sale.
Another reason for the removal of sugar bags from exchange godowns may be the problem of getting their quality re-validated by assayers after expiry of the stocking period. “With the fuel price hike the inter state movement of stocks will become very expensive and hence the consumers have bought the stocks lying in the local private warehouses as well. This is likely to support the spot market further, futures may remain in backwardation for some more days,” say analysts at Mumbai-based brokerage Man Financial.
Meanwhile, to attract greater volumes in sugar, MCX has decided to relax its quality specifications to allow more mills to qualify for delivery. The exchange has relaxed its delivery specifications from 150 icumsa to 175 icumsa. The move is pending with the FMC for approval and may be implemented from the September contract onwards. MCX is also planning to add more delivery centres. The list may include centres like Kanpur, Kolkatta, Vijaywada and Kolhapur in addition to Delhi.
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“We were finding that only one mill was making below-150-icumsa quality in UP. That was creating a hurdle for traders. Stockists were also never sure whether or not their sugar would qualify for delivery. By raising the bar, more mills would be able to qualify for delivery and thus improve volumes,” officials said.
Sugar prices continue to be a cause of worry for the government as the rise has been fairly sharp over the last few months. Even so, it has permitted STC to export 1.5m tonnes to Pakistan, in addition to the quota allotted to industry body ISGEC. Consequently, while it may ease the pressure on Pakistan’s consumers, things are still far from affordable for the desi aam aadmi.
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