Date:26/07/2006 URL: http://www.thehindubusinessline.com/2006/07/26/stories/2006072604181900.htm

Back Ban on exports weakens sugar counters

Deeptha Rajkumar

Expectations of extra quota for festive season also dampen sentiment

Mumbai , July 25

There's not much to cheer about for the sugar sector and this is evident in the declining sugar stock prices. The counters of Balrampur Chini, Dwarikesh Sugar, Mawana Sugar, Simbhaoli Sugar are among those that have lost ground by about 25-28 per cent month on month.

Industry experts believe that the Union Government ban on exports, albeit temporarily, has acted as a dampener on market sentiment. "At a time when one is looking at a bumper crop, this is a set back," said an analyst.

As such prices are expected to remain stable over the next two-three months. Selling sugar outside India fetches a price that is higher by about Rs 2,000 a tonne compared with domestic prices.

Analysts maintain that with the price of cane going up and in a scenario where the Union Government is trying to control prices in the domestic market, companies are bound to take a hit on margins.

Another factor that appears to be impacting sentiment adversely is the fact that the Union Government will release more sugar under the free sale quota (FSQ) for the festive season.

"So, for the period August, September, October, supply will be augmented. This is yet another dampening factor," said an industry source. Commodity analysts expect the FSQ to be around 10-12 lakh tonnes.

National policy on ethanol

On the question of ethanol, industry sources expressed concern that the production is not going anywhere. "Even though the global market on ethanol is looking up, all talks on bio-ethanol products remain on paper in India. There is no national policy for ethanol promotion. Issues relating to uniform taxation have not been addressed," said an industry expert.

Analysts believe that with oil companies stalling things on the price issue, ethanol production is unlikely to take off in a big way. "It is more of a policy issue at stake here," said a sugar analyst. Currently for most companies, ethanol and co-generation account for 20% of revenues.

The Union Government had banned the exports of sugar till March 31, 2007 on the recommendation of the Cabinet Committee on Prices. However, on July 16, the Union Food and Agriculture Minister Mr Sharad Pawar, said the Centre was planning to lift the ban on sugar exports from the beginning of the next cane-crushing season in October this year.

In case the ban stays, the surplus stock of sugar could have a bearing on domestic prices. According to sources, the prices may come down to Rs 1700-1800 a tonne range.

Commodity sources peg production for the next season to grow to around 22 million tonnes as against 19 million tonnes this year. Government projections, however, are being touted as overly optimistic given that they anticipate sugar production for the season to be around 23.5 million tonnes.

Consumption is said to be growing steadily at four per cent, which is the historical average.