Pressure Likely On Sugar Prices

Chennai: The Centre’s move to release additional quota of sugar for sale in the open market this month is likely to put further pressure on sugar prices, sagging already under a production glut, especially in November. “The Centre during the weekend released an additional 1.45 lakh tonnes under the free sale quota and this takes the quantity of sugar available for sale in the open market to 18.80 lakh tonnes. Of the additional quota release, 1.25 lakh tonnes have been allocated only for Maharashtra,” industry sources said.

Earlier, the Centre had released 16 lakh tonnes before allotting another 1.35 lakh tonnes. As per the Government norms, the Centre decides on the quantity of sugar that can be sold in the open market and through ration shops. The allocation is made month-wise in an effort to ensure that the market does not crash due to over supply. At the same time, any shortage, especially during festival periods, is also overcome through additional allocation.

Failiure to lift quota

However, this additional release is in view of one of the Centre’s nominee failing to lift the quota allocated for distribution through ration shops in time. Such failure forces mills to urge the Centre to take some measures as it creates problem of liquidity and space. This unutilised quota is converted into free sale quota and diverted to the open market.

“Prices have already crashed by Rs 7-8 a quintal in the futures and by Rs 10 in the open market,” sources said.

Spot prices for medium sugar have declined to Rs 1,410-1,505 a quintal and that for small sugar to Rs 1,355-1,406. On NCDEX, sugar for November delivery were down to Rs 1,282.

“The first allocation has to be expedited by November 4 and the second by November 18. Now, as the validity period draws near, mills, which wait for an opportune moment, will be under pressure to lift the stocks and send it to the open market.

As a result, prices during November could fall,” they said. Though there may not be a sharp fall in the prices due to festival demand, trade sources said prices could fall by Rs 20-25 a quintal.

Lack of direction

Meanwhile, Kotak Commodity Services Ltd, in a note on the sugar situation, said there was clear lack of direction in the sugar market.

“There is hardly any change in the fundamental factors. There is some demand for sugar mainly due to festive season. But this is quite normal as the demand was expected this time of the year.Any major upside in the market is unlikely,” it said.