Sugar prices rally on account of lower rainfall in Maharashtra and Karnataka

MUMBAI: A less than normal rainfall in Central Maharashtra and Karnataka has led to a rally in domestic sugar prices in the last couple of weeks. However, prices are unlikely to go up significantly from this level due to government intervention in controlling the prices.

Over the last one month, Sugar prices (ex-Mumbai) have grown by 5% to Rs 33.3 per kg. It is believed that the government, in order to contain the prices, may ask mills to increase sale of sugar in open market. In spite of the government intervention, prices are likely to around this range due to lower production estimates for next year.

The present rise in sugar price augurs well for the sugar manufacturing companies. The profits of these companies over the last three quarters have declined sharply due to flat sugar prices in the same period. If prices remain at this level, companies would be showing a decent profit.

Another positive factor for the companies is the rise in international prices. Due to delay in harvesting in brazil, prices of LIFFE sugar – an international benchmark, grew 13% in one month. With the removal of restrictions on exports, companies are likely to benefit from the rise in international prices. In addition, the depreciation of Rupee would be an added advantage for the companies.