New Delhi (Agency): In the last three weeks, India has seen an unprecedented rise in domestic sugar prices, putting the nation on edge about future availability and economic consequences. Financial analysts indicate that these elevated prices are likely to persist for the next 2-3 months.
The report by JM Financial Institutional Securities pinpoints several reasons for the surge. Firstly, production issues have led to a closing inventory estimated at just 6 million metric tons (mnt) as of September 30, which would suffice only for two months of consumption during the festival season. Secondly, a delay in the commencement of the sugar crushing season to the end of November, due to late festivals and labor availability, further stokes the fire.
India has been a key sugar exporter for the last three years. However, uncertainties around its production estimates have escalated global sugar prices to a 12-year high. Interestingly, the rise in global prices doesn’t directly impact local rates, as the government controls these through its monthly release mechanisms.
The Indian Sugar Mills Association (ISMA) had previously estimated a sugar production of 31.7 mnt for the season stretching from October 2023 to September 2024 (SS24). However, a dry spell in August, particularly in Maharashtra and Karnataka—which contribute 45-50% of India’s sugar production—has put these estimates at risk. The revised net production estimate now stands at around 30 mnt, barely above the estimated domestic consumption of 28-28.5 mnt.
Chief Investment Strategist at Geojit Financial Services, V.K. Vijayakumar, sees a silver lining in the situation. He said, “We see significant optimism returning in the sugar sector, thanks to seasonal factors and growing concerns on India’s sugar production estimate for the upcoming season.” He also pointed out that the Indian sugar industry could gain from the decision to increase ethanol blending with petroleum products, as discussed in the recent G20 summit.
However, the JM Financial report also cautions that the government is likely to intervene to prevent any abrupt increase in sugar prices due to its impact on food inflation and upcoming state or general elections.