Sugar prices up but need policy support: Traders

PUNE: Cooperative banks of Maharashtra have increased sugar valuations on the back of a rally in sugar prices in the last fortnight, a move that will help sugar mills borrow more from banks and make payments to cane farmers.

Traders, however, warn that the prices may slide back again if not supported by policy decisions because the sudden spurt in prices was artificial.

Maharashtra State Cooperative Bank has increased valuation of sugar by Rs 130 per quintal to Rs 3,100 per quintal.


Sugar prices had jumped by 10-12% following twin government decisions of increasing import duty and capping mill level sugar sales two weeks ago, but they have stagnated or declined slightly in different producing markets of the country in the last few days.

Spot NCDEX price for M30 grade sugar at Muzaffar Nagar had increased from Rs 31.45 per kg on February 5 to Rs 35 per kg on February 16. However, it has reversed to Rs 34.20/kg as of Wednesday.

In Kolhapur, price of S30 grade sugar jumped from Rs 28.40/kg in the first week of February to Rs 32/kg on Wednesday. However, mills have reported lack of sales at the prevailing rates. “The rise in sugar prices was artificial as it was done by traders to book profits,” said sugar broker Abhijit Ghorpade.

“As the central government has capped sugar sale by mills for only two months, prices may remain under pressure unless the excess sugar moves out of the country,” he said.

However, ratings agency Crisil Ratings believes that the import duty and stock limits will improve prices and profitability of mills and sugarcane farmers alike.

For farmers, this would mean timely payments for cane, and curbing fresh buildup of arrears on this count.

“Global sugar prices are already down a quarter from the last season’s average because of surplus production,” said Subodh Rai, senior director at Crisil Ratings. “Hence, we believe the doubling of customs duty to 100% will provide a cushion of Rs 7 per kg to an integrated sugar mill against a further fall in global prices.”

Credit profiles of sugar mills have improved significantly in recent years. Total debt of top 10 sugar companies stood at Rs 5,200 crore as on September 30, 2017, down 70% from Rs 17,800 crore two years earlier.

Manish Gupta, director at Crisil Ratings, said the agency expects credit profiles of sugar companies to remain stable, buoyed by improving price scenario and deleveraging.

“However, we will continue to monitor for sharp movement in cane prices in the next sugar season, sowing acreage and regulatory measures,” he said.