Mills want government to let them take advantage of high prices
By Nick Godt, MarketWatch
MUMBAI (MarketWatch) -- Sugar mills in India, the world’s No. 2 producer of the commodity, are making a push to persuade the government to double the permitted exports so that producers, and their stocks, can capitalize on a recent surge in prices.
After sliding since the start of the year, sugar futures have jumped due to a slow harvest season in Brazil, the world’s largest producer, and to port congestions in Thailand, the world’s second largest exporter.
Sugar No.11 for July delivery SB1N +0.88% has rallied 25% since mid-May to trade around 25 cents a pound.
“International prices are very high, but [India’s] producers will only benefit if exports are allowed beyond [the currently allowed] 500,000 tons” for this year, says Sageraj Bariya, agriculture and retail analyst at Angel Broking in Mumbai.
A sweet opportunity
New Delhi has imposed export controls to ensure that India’s enormous consumption needs are met, even as it has struggled to contain the impact of high food prices domestically.
Still, India’s biggest producers, such as Bajaj Hindustan Ltd. IN:500032 -1.60% , Balrampur Chini Mills Ltd. IN:500038 -2.19% and Shree Renuka Sugars IN:532670 -2.05% , don’t want to let the opportunity slip by.
After sliding to 52-week lows in May, their stocks have jumped 12%, 17% and 9% respectively.
Smaller players Jeypore Sugar Co. IN:590054 +4.00% , Sir Shadi Lal Enterprises Ltd. IN:532879 -3.49% , Bannari Amman Sugar IN:500041 +2.86% and Dhampur Sugar Mills Ltd. IN:500119 +0.18% have likewise seen nice bumps in their stock prices in recent weeks.
The Indian Sugar Mills Association, a trade group that represents producers, is now upping the ante, asking the government to relax restrictions to allow them to export an additional 1.5 million tons of sugar.
“We are seeing a very good opportunity for this to take place,” says Abinash Verma, ISMA’s director general, who made the request with the government earlier this week.
Sugar exports have been restricted in India after a dry monsoon two years ago forced the government to buy sugar on international markets for the country’s domestic needs. India consumes about 22 million tons of sugar annually, making it the world’s largest consumer of the commodity.
India’s move itself had contributed to a global surge in sugar prices, which the government then tried to contain by subsidizing more production from farmers.
Vital issue
High food prices are a vital issue for much of India, where close to 40% of the population of 1.2 billion lives below the poverty line and malnutrition remains widespread.
