Sugar Drops on Sluggish Demand.

Sugar prices declined 2.4% during the last week as the crushing is on in full swing in the domestic markets. Prices continued to trade lower in the current week and settled 1.81% lower on Monday.

According to the agri ministry, Sugar exports have not been put on hold and mills are asked to fulfill the necessary conditions by January 31.

International markets remained closed on Monday. During the last week, Raw as well as White Sugar futures traded in a narrow range as they were waiting for the decision from the Indian cabinet with regards to exports which were delayed due to rising food inflation.

Production

Indian Sugar production is estimated at 24.5-25 million tonnes in the current year 2010-11, up by 30% compared to last year.

As on 13th January 2011, 158 sugar factories in Maharashtra crushed 295 lakh tonne sugarcane and produced 30 lakh tonne sugar with 10.31% recovery.

Sugar output in Karnataka is up by 11% at 9.77 lakh tonnes in the first three months of 2010-11 season that began on 1st October, 2010 (State Farm Department).

Trade

India is normally a net sugar exporter, but had to import in the previous two seasons due to fall in output. However, the government during the last month had permitted exports under Open General License (OGL) to the extent of 5 lakh tonnes and thus mills are asked to fulfill the necessary obligations by January 31.

Indian government has imposed 60% duty on sugar imports. Total imports in 2010-11 are expected to be lower around 1.2 million tones compared to 4.5 million tonnes in 2009-10.

Outlook

Sugar prices are expected to remain under pressure in the intraday due to sufficient supplies in the domestic markets.

Currently, Sugar prices at Kolhapur are trading around Rs. 2800 per qtl levels. We expect Spot prices at Kolhapur to trade in the range of Rs. 2750 and Rs. 3000 per qtl levels for the rest of the month.

Ongoing crushing may put some pressure on the prices. However, any significant decline in the prices due to crushing may be treated as a good buying opportunity for the medium term.

In the medium to long term domestic Sugar prices are expected to recover due to supply tightness in the global markets amidst higher parity of the international Raw as well as white sugar.

Source : commodityonline.com