InvestorQ : How do you see sugar prices in this year and what about sugar stocks like Dhampur, Balrampur and Dwarikesh?
diksha shah made post

How do you see sugar prices in this year and what about sugar stocks like Dhampur, Balrampur and Dwarikesh?

Arti Chavan answered.
2 years ago

Before we get into the specifics of sugar stocks, here is what you need to know about the macro picture about sugar output in the current year.

· According to estimates put out by the Indian Sugar Manufacturers Association or ISMA, sugar production for the current sugar cycle (Oct-Sep) could likely rise by 13% to 310 lakh tons

· It needs to be remembered that sugar industry follows a unique cycle of October to September each year and that is what is meant by a sugar year. The 2019-20 sugar year has just concluded in September and the new sugar year 2020-21 has started.

· Even as production has increased, the sugar industry in India is already grappling with surplus opening stock, which has been brought forward from the previous year. This could dampen prices during the year.

· The only way this surplus can be managed effectively is to engineer a sharp spurt in exports of sugar or through the greater use of ethanol blending in petrol and fuel, but there is a limit to which this can be done. Exports are the only real alternative.

· In the previous years, the government had compensated the sugar companies by giving them export subsidies as Indian sugar prices were not competitive compared to sugar produced by Thailand and Brazil. That may have to continue this year also.

· If the supply is not adequately managed, it could lead to another hit on sugar prices. That will only worsen the situation of sugarcane dues to the sugar farmers, which is already a major concern for the government.

· In the previous sugar cycle, the total sugar output was 274 lakh tons, and the growth came predominantly from a 48% growth in output in Maharashtra on the back of much better monsoon this year.

· The problem is India already has inventory of 106 lakh tons. This alone is sufficient to meet nearly half year’s domestic demand for sugar and then you have a glut if another 310 lakh tons of sugar comes into the market.

· The fate of sugar companies like Blarampur, Dhampur and Dwarikesh will depend on what strategy the government adopts to reduce the domestic glut in sugar supply. Else, excess supply can dampen prices and be negative for sugar stocks in India.