Sugar Market Plunges due to Excess Supply in India

There has been a sharp correction of around 17 % in the sugar futures prices in India since the start of the sugar marketing season (sugar marketing season starts from October and ends in September).

The Futures prices of NCDEX Sugar May Contract have dropped from Rs. 2860/quintal during October 2014 to Rs. 2370/quintal till date.

In fact, Traders were having fair idea about the production rise and situation of ample supply world over. They utilized every rise in making selling opportunities.

The market seems still in the grip of the bears in the light of the facts and figures which were released by the Indian Sugar Mills Association (ISMA) recently.

The important points of the Press Release are given below.

·        The sugar mills in the country have produced 221.8 lac tons of sugar during the current season up to 15^th March, 2015.  This is 28 lac tons higher than the production up to the corresponding period in the last season of 193.8 lac tons.

·        As on 15^th March, 2015, 476 sugar mills were still under operation, which were 409 mills last year at the same time

·        The Government has revised its sugar production estimates to 265 lac tons, as compared to the earlier estimate of 250 lac tons.  They had previously estimated a surplus of 14 lac tons and, therefore, allowed incentives to export this 14 lac tons as raw sugar. 

·        However, the global sugar prices fell at the same time mainly due to the massive depreciation of Brazilian currency in comparison to the US dollar, making sugar exports from Brazil even cheaper.  The fall in global sugar prices, therefore, have restricted raw sugar exports from India.

·        With higher estimations of the sugar production by the Government by 15 lac tons and lower expected raw sugar exports, the industry has requested for creation of 20 lac tons of buffer stocks.  It will help the industry with some cash flows to carry the extra sugar and will check distress sales by some sugar mills.  This 20 lac tons can then be used by the Government next season for its PDS requirements.

Source: ISMA, Press Release, 17 March 2015.

NCDEX SugarM May Contract