The Hindu Business Line : Sugar prices likely to peak early next year

While a section of the millers feel that the prices could stagnate at Rs 1,500-1,550, some feel the prices could reach around Rs 1,700 a quintal and higher during February-March.

Chennai , Dec. 15

SUGAR millers expect prices to remain buoyant on forecasts of low supplies and production.

Sugar price, which is buoyant now, could peak in March-April 2005. For now, there is some resistance in the market that is holding prices at less than Rs 1,600 a quintal, this is bound to ease in a month or two and sugar price will continue to gain, say industry sources.

A tight rein on monthly releases and forecast of lower than normal production are the reasons for the buoyancy, say sugar millers.

Sugar in South India costs around Rs 1,500 - 1,550 a quintal ex-factory, but at higher levels there is some resistance in the market and there is no off-take for now. While a section of the millers feel that the prices could stagnate at these levels, some feel the prices could pick up early next year in anticipation of the demand for the summer season. Ex-factory prices could reach around Rs 1,700 a quintal and higher in February - March 2005, they predict. Millers expect that the Union Government will keep a tight watch on monthly releases keeping in mind the modest stock situation. Except for the mills in Tamil Nadu and Karnataka where sugarcane crushing continues beyond the normal season, crushing season comes to a stop in July in most other States. This will mean that there is a lean season between July and September before the next season commences.

Against normal consumption of about 180 lakh tonnes, production forecast for the 2004-05 season is 125 lakh tonnes. Including an expected carry over of about 45 lakh tonnes from the previous season, there is a gap. But it can be bridged with raw sugar imports. However, if the monthly releases are stepped up, the traders could hold on to stocks and make a killing later next year, say industry sources.

In December, the free market release was around 11 lakh tonnes, apart from the 2 - 2.5 lakh tonnes available through the public distribution system. This has helped to shore up prices even during the post-Diwali season, which is regarded as a low period. It is just the sentiment of low supplies that is keeping the prices high feel manufacturers.

Though sugar prices are high, millers point out that the cost of production is also on the rise. With sugarcane availability down, mills need to pay a higher price. While the Statutory Minimum Price has been fixed at Rs 754 a tonne of sugarcane linked to 8.5 per cent recovery, actual prices could range around Rs 1,000 a tonne. Price of fuel and chemicals is also on the increase.

Also, it is only a matter of time before the cycle comes a full circle. Sugarcane planting has been near normal this season meaning that the 2005-06 season will see production picking up and a correction in prices, they say.