Date:23/12/2006 URL: http://www.thehindubusinessline.com/2006/12/23/stories/2006122304031300.htm

Back Govt move to allow export fails to cheer sugar stocks

Suresh P. Iyengar

Expectations of bumper crop weaken price

Mumbai , Dec. 22

The Government move to allow sugar companies meet their export obligation is unlikely to help the sugar industry as global prices have fallen steeply. Sugar prices on New York Board of Trade were down 11.90 cents per pound on Friday against 19.73 on February 5. The prices had touched a low of 9.7 cents in September.

Sugar prices in the domestic market have remained weak on expectations of a bumper sugar crop this season (October-September). Prices in Uttar Pradesh - the main sugar market - have fallen from Rs 18,000 per tonne to Rs 16,000 per tonne. Sugar output this season (2006-07) is expected to be around 22.7 million tonnes against 19.3 million tonnes last year.

Shares of sugar companies on the BSE have remained weak. Shree Renuka Sugars, which touched its 52-week high at Rs 1665 on the NSE during April this week, is currently ruling at Rs 418.65.

"We are expecting the Union Budget to provide some trigger for sugar stocks, like a policy on blending ethanol with petrol. Sugar companies have made major investments in capacity additions in anticipation of good demand. There is little scope for appreciation in sugar stocks in the short term though it is promising in the medium and long term," said Mr Avinash Gorakshakar, head of research, Emkay Shares and Stock Brokers.

Indian companies have imported duty free, raw sugar of about 2.3 million tonnes in the last two years with an obligation to export the same amount. Many companies have already exported 1.1 million tonnes before the Government clamped an export ban to rein in spiralling prices.

Sakthi Sugars with an export obligation of two lakh tonnes is planning to export 15,000 tonnes every month starting December.

World sugar production is expected to be higher at 155 million tonnes against last year's 148 million tonnes. Brazil, major sugar producer, is expecting a sugar output of 30.8 million tonnes against 26.85 million tonnes last year.

"Farmers in Brazil, who were earning 5-8 cents per pound of sugar between 2002-05, shifted to sugarcane cultivation after prices started moving up. Now the sugar cycle is down and will remain so for the next two-three years," said Mr Harish Galipalli, head of research, Karvy Comtrade.