Date:05/01/2005 URL: http://www.thehindubusinessline.com/2005/01/05/stories/2005010502530100.htm

Back Is sugar price rise speculative?

Harish Damodaran

New Delhi , Jan. 4

IS the current sugar price surge largely speculative in nature? Going by daily trades recorded at the National Commodity & Derivatives Exchange Ltd (NCDEX), this does indeed seem to be the case.

During November, daily traded values of January 2005 futures for M Grade sugar ranged from a low of Rs 6.57 lakh on November 20 to a high of Rs 1.72 crore on November 30.

The corresponding daily volumes varied from 40 tonnes to 1,020 tonnes.

But since then, daily trading values as well as volumes have soared exponentially.

By December 13, the daily traded value had touched Rs 9.96 crore and volumes 5,700 tonnes.

On December 20, these climbed even further to Rs 20.09 crore and 11,350 tonnes, respectively.

These more than doubled to Rs 44.16 crore (23,860 tonnes) on December 24 and further doubled to Rs 91.39 crore (47,230 tonnes) by December 30.

In other words, within the space of a month, daily futures in sugar had climbed over 46 times in volume terms and 53 times in value terms.

And coincidentally, the period since November 30 has also seen January futures prices for M 30 grade (Muzaffarnagar delivery) go up from Rs 16.86 a kg to Rs 19.58 on January 3.

The uptrend in the futures market has also left its impact on spot prices. On November 30, Daurala sugar was quoted at Rs 15.25 a kg in the Delhi wholesale market.

On Tuesday, it closed at Rs 18.55.

The significant point to note is that the increase in prices - by Rs 3 a kg or more in a month - has taken place without any underlying change in fundamentals.

The fact that the country's sugar output would take a dip for a second successive sugar season (October-September) - from 201.45 lakh tonnes (lt) in 2002-03 to about 140 lt in 2003-04 and an estimated 125 lt in 2004-05 - is something which was long known to be coming.

Neither has any dramatic jump in demand for the commodity been reported to justify a sudden explosion in prices.

"Going by the real supply-demand position, prices would have gone up gradually and touched Rs 20 a kg levels by April. Here, we have seen a sudden rise that appears to be mainly speculative in character," said a market observer.