Sugar stocks to remain bitter

Sugar stocks across the board witnessed sharp correction in the past few months. The major reason was substantial drop in sugar prices domestically and globally too. Government’s efforts are not showing signs of recovery in the near-term.

The prices of sugar have dropped substantially in the past month creating huge inventories at the companies end. Due to lower prices companies struggle to pay minimum price of cane to farmers, which has caused strong losses across the board.

The governments also intervened with various measures to settle down the sugar prices. The import duty on sugar was hiked substantially and export duty waived of to curb supply in the market. Also, the government announced absubsidy of Rs.55 per tonne to farmers.

The minimum selling price for sugar was much lower than expected by the sugar mills. The government wants to create a buffer stock ahead of festive season which would be around 9-10 per cent of the total output. Companies can buy cane from the farmers and use the extra stock to make ethanol. This will create some uptick in the market, although not enough to recover the losses caused to the sugar mills.