Sugar stocks Balrampur Chini, Dhampur Sugar, others tumble up to 5% as govt allows duty-free imports

Shares of sugar companies tumbled on Friday after the government allowed duty-free imports of 1 million metric tonnes of raw sugar until October 31, as prices surged ahead of the festive season.

Sugar stocks had rallied sharply in recent weeks as sugar prices climbed nearly 40% over two months amid tightening supplies, prompting India, the world’s largest sugar consumer, to turn to imports.

Balrampur Chini Mills, Dhampur Sugar Mills and Bajaj Hindusthan Sugar shares fell 5% each on Friday, a day after hitting fresh 52-week highs. EID Parry India and Shree Renuka Sugars shares declined over 3% each.

Heightened sugar demand ahead of festive season

The government’s decision marks India’s first sugar imports in nearly a decade, according to the government order. Sugar demand typically rises between August and November as festivals such as Ganesh Chaturthi, Dussehra and Diwali boost demand for sweets and confectionery. Manufacturers also build inventories ahead of the festive season, further supporting demand.

The government has also tightened inventory limits, barring dealers handling more than 10 metric tonnes of sugar per month from holding stocks for over 15 days.

Last month, the government directed dealers to hold sugar stocks for no more than 30 days to bolster supplies.

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What lies ahead?

Patchy rains and dry weather conditions have affected sugarcane output. Since the crop requires substantial water for irrigation, concerns over supply have added to upward pressure on prices.

Further, a worsening supply outlook in Brazil, the world’s largest sugar producer, has also triggered a sharp rally in sugar prices. The country has warned of a delay in the harvest due to adverse weather conditions.

Meanwhile, a shift towards ethanol is adding to concerns over a potential sugar supply crunch. In June, 58% of Brazil’s cane juice was diverted towards ethanol, which is expected to offer better profitability than sugar. Brazil also raised its mandatory ethanol blending target to 32% in July from 30% in June, significantly above the 25-27% levels seen just months earlier.

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