Bitter-sweet numbers

Anup Menon

ONE OF the key factors that may have impacted the performance of sugar mills in the past six months is the fluctuating sugar prices.

The price of the S-30 variety in the Mumbai market moved up around 11 per cent from Rs 1,358 per quintal in January 2000 to Rs 1,508 in July. The prices have been hovering around Rs 1,500 the past three-four months. Do these trends indicate that sugar prices are firming up? Not necessarily.

The good monsoon and the higher area under sugarcane led to record production in sugar year 2000-2001 (October-September). In 1999-2000 the country had had one of the best crops in the past few years. Given that the overall domestic demand is likely to be much lower than the production, the carry-forward stocks from 1999-2000 are likely to be high.

The future looks bleak as the production prospects for 2000-01 also look bright. Being a perishable commodity, sugar cannot be stocked for long. This is likely to cause price pressure. The key factor would be the ability of the mills to export and generate better realisations. But exports face two major threats. One, the movement of the rupee, and, two, and more important, the price in the international markets.

The potential for exports is higher this fiscal given the lower global production. Estimates are that major producers, such as China, Pakistan and Ukraine, had lower production in 1999-2000. Some countries have had to import meet their requirements.

World sugar prices have shown some signs of improving in the recent past. For instance, the average price for the April-June 2000 quarter is around 15.63 cents/kg against 12.63 cents in the corresponding previous period. The monthly averages of world prices indicate that they were the highest in June at 18.37 cents/kg.

Given the current price trends and the recent depreciation of the rupee, mills could have made a killing had they exported. However, the key factor is whether the price trends will sustain. Given the level of production in the country, a lot would depend on the export policy. Indications are that the Government is going slow and cautious so as to avoid flooding the international market and prices crashing.

In fact, historically, export realisations have always been low as whenever India has gone into the market to sell sugar, prices have dropped. For, it has usually been a distress sale, and buyers have been able to dictate prices. A lot would also depend on the government policy of allowing exports to Pakistan, which is facing acute shortage of sugar this season.