Sugar Stocks in India have surged by 6-8 percent, driven by expectations of a significant price increase stemming from the ongoing drought-like conditions in crucial sugarcane cultivating areas.
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Sugar stocks in India
Expectations of a substantial price surge due to the prevailing drought-like conditions in key sugarcane growing regions have fueled a 6-8 percent gain in sugar company stocks.
Shree Renuka Sugars witnessed a five percent increase, reaching ₹53, while EID Parry and Dwarikesh Sugar surged eight percent and six percent to ₹522 and ₹99, respectively. Dalmia Bharat Sugar also climbed six percent to ₹428, and Balrampur Chini saw a two percent jump to ₹412.
Domestic sugar prices have already soared to a six-year high of ₹37,760 per tonne, a level last observed in October 2017. However, it’s worth noting that these prices are still nearly 38 percent lower than the global white sugar benchmark.
To stabilize the domestic market, the government has taken steps to halt sugar exports in anticipation of a decline in domestic production. This move has already driven global sugar prices to a decade-high.
Concerns Over Low Output on Sugar stocks in India
Earlier this month, the Indian Sugar Mills Association (ISMA) estimated that sugar production would decline by three percent to 316.80 lakh tonnes (lt) in the upcoming sugar season starting in October, compared to 328 lt in the current season ending this month. ISMA attributed this decline to increased diversion of sugar toward ethanol production, coupled with dry weather conditions.
ISMA also indicated that approximately 45 lt of sugar are expected to be diverted to ethanol production in the next season, compared to an estimated 41 lt in the 2022-23 season.
Amit Gupta, a Research Analyst at Kedia Commodities, noted that sugar crops in major growing regions in Maharashtra and Karnataka are suffering from a desperate need for rain, posing a threat to the production outlook. This situation may exert further pressure on controlling food inflation.
The prolonged dry spell in Maharashtra and Karnataka is anticipated to pull down sugar production to 105 lt, compared to the previous estimate of 90 lakh tonnes.
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Effect of Rising Ethanol Demand on sugar stocks in India
The government’s push for ethanol blending is set to boost the margins of sugar companies. Ethanol demand is projected to grow at a compounded annual growth rate of 19 percent, reaching $16.5 billion by 2030, up from $2.5 billion in 2019.
By 2030, ethanol demand is expected to reach 15.7 billion liters, with 11.7 billion liters designated for blending at a 20 percent rate, and the remaining 4 billion liters intended for non-fuel purposes, as indicated by an analyst. This trend underscores the increasing importance of ethanol in India’s energy and economic landscape.
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