Sugar stocks Balrampur Chini, Dhampur Sugar, Dalmia Bharat Sugar, others rally up to 7%. Here’s why

Shares of sugar companies including Balrampur Chini Mills, Dhampur Sugar, Dalmia Bharat, Shree Renuka and EID Parry rallied up to 7% after Indian sugar prices rose to Rs 4,400-4,800 per quintal, up 8-10% in the last month, marking a 7-year high.

The rally comes amid a rapid surge in global sugar prices. US raw sugar prices moved above the $15/lb resistance level to $16/lb, while London White Sugar climbed to a 15-month high of more than $500 a tonne.

In today’s session, Balrampur Chini Mills gained 3% to Rs 624 on the BSE, while Dhampur Sugar Mills gained 4% to Rs 167 per share. Dalmia Bharat Sugar shares gained 7% to Rs 439, while Uttam Sugar gained 6% to Rs 268 per share. Triveni Engineering and Eid Parry gained over a per cent each.

What is driving the sugar rally?

A key trigger is the worsening supply outlook in Brazil, the world's largest sugar producer. The country has warned of a delay in the harvest amid adverse weather conditions. Adding to uncertainty, Brazil has suspended its bi-weekly harvest and production reports, leaving investors with limited visibility on the supply situation.

The shift towards ethanol is further intensifying concerns over a potential sugar supply crunch. In June, 58% of Brazil's cane juice was diverted towards ethanol, given that it is likely to be more profitable than sugar. Brazil has also raised its mandatory ethanol blending target to 32% in July from 30% in June, significantly higher than the 25-27% mix seen just months earlier.

Supply concerns are not limited to Brazil. Intense heatwaves and El Nino conditions across the EU and the UK have added to fears of tighter supplies, with sugar output from the region trimmed to 14.98 million tonnes.

In Asia, Thailand, the world's third-largest sugar producer, has cut its projected output by 15.6% to 9.5 million tonnes. India, the world's second-largest sugar producer after Brazil, is also projecting lower sugar production. Authorities are physically verifying mill volumes to enforce strict hoarding limits.

Global deficit estimates are also pointing towards a tighter market. Green Pool has projected a global sugar deficit of 3.3 million tonnes, while StoneX has estimated the shortfall at 1.7 million tonnes. The International Sugar Organisation has forecast a deficit of 0.26 million tonnes.

With production concerns mounting across major sugar-producing regions and global benchmark prices continuing to climb, the supply outlook has emerged as the key factor driving the sharp move in sugar prices.

India won’t export sugar for years

India, the world's second-largest sugar exporter, is expected to have little surplus for export for at least three more seasons as El Nino weather conditions threaten cane production and rising ethanol demand squeezes supply.

The twin pressures are poised to keep millions of tons of sugar off the world market, tightening supplies for importers across Asia, Africa and the Middle East and supporting benchmark prices in London and New York.

A reuters report stated that government sources and farmers suggest that lower cane availability and rising ethanol demand will leave little for exports for several years, prompting dealers at global houses ‌to warn head offices of shrinking ⁠opportunities in ⁠India, trade sources said.

India exported 6.8 million metric tons of sugar annually on average in the five seasons through 2022-23 - about 10% of global shipments. This year, after exporting around 800,000 tons, India banned shipments until September 30, the end of the season.

A prolonged absence deficit from major suppliers would remove a key balancing supplier as weather risks and biofuel policies reshape global sugar trade flows.

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