What is driving sugar stocks higher? Is it true that sugar inventories in India are expected to fall sharply?

The rally in sugar stocks in India is all about robust price expectations due to falling sugar inventories. Sugar sector follows the typical sugar cycle of October to September. For the 2021-22 sugar cycle, the total output is expected at 34.50 MT out of which nearly 3.50 MT is expected to be transferred to ethanol blending. Now, out of the 31 MT that is left, the estimate is that nearly 27 MT will be consumed domestically in this cycle.

Now comes the more interesting part. A total of 6 MT of sugar is expected to be exported this sugar year and as a result, the sugar inventory is estimated to fall from 8 MT to 6 MT. at one time, Indian sugar exports could not compete, but now it is possible without government subsidy support. This is due to lower exports from Brazil due to supply chain constraints and from Thailand due to natural factors.

The other important factor in sugar inventories is ethanol. This year 3.50 MT was moved towards ethanol blending but that is more due to limited distillery capacity. In the coming years, as distillery capacity is ramped up, more diversion to ethanol blending would mean further downward pressure on inventories. This is likely to keep sugar prices above the Rs.36/KG. This is also profit-smart as ethanol has been a bigger contributor to EBITDA.