Sugar market absorbs India move.

The government decision to free sugar exports under the open general licence (OGL) failed to have any big impact on global sugar prices amid ample supply from India, the world’s second largest producer, and a good harvest in Brazil weighed on global market sentiments. Stock surplus amid exports from other major producing countries also limited any upward drift.

Sugar futures prices have been consolidating on the NCDEX platform over the past few months in the Rs 2,600-3,100 per quintal range. The decision to free sugar exports from India took prices higher as market participants bought fresh positions at current prices. Open interest for delivery in May sugar contract on NCDEX rose.

Although NCDEX sugar prices have gained around 2.6 per cent over the past one month, ICE Raw Sugar declined sharply by around 14 per cent in international markets. The prices have been hovering around its one-year low on the back of higher sugar surplus globally coupled with India’s decision to allow unrestricted sugar exports.

“The rise in domestic sugar prices will be short-lived as production is estimated higher for this year. India is estimated to produce 26 million tonnes of sugar in 2011-12 compared with 24.3 million tonnes last year. The domestic demand is projected to be 22 million tones,” said CP Krishnan, whole-time director of Geojit Comtrade.

“Sugar production and exports from Thailand, the world’s second largest exporter, may climb for the second year beyond forecasts, as productivity improved. Thailand’s output for the year will probably reach 10.5 million tonnes, trouncing 10.3 million tonnes projected late February,” he said.

“After importing around 2 million tonnes during 2009-10, India has turned net exporter in 2010-11 and also in 2011-12 amid surplus production,” said Vedika Narvekar, senior research analyst at Angel Commodities.

In 2011-12, out of the estimated 26 million tonnes production, India has produced 25.10 million tonnes during the October-April period, up from 2.5 million tonnes produced in the same period last year. For the 2012-13 season, sugar plantation is nearing its end and 46.4 lakh hectares area have been covered so far compared with 44 lakh hectares covered in the same period last year.

“For the 2012-13 season, the government is expecting sugar output to be around 25-25.5 million tonnes with an opening stock of around 5-5.5 million tonnes. Considering the domestic consumption of over 22-22.5 million tonnes, India may retain its position of net exporter for the third consecutive season,” said Narvekar.

In the domestic market, we expect prices to remain range-bound on account of rising demand coupled with positive sentiments with respect to exports. However, the sharp upside may be capped on the back of sufficient supplies and lower international prices, which are making exports unattractive, said Krishnan.

Brazil will start harvesting in the first week of May, hence, it supplies are likely to influence international prices, he said.

Krishnan also pointed out that after freeing Indian exports, traders and speculators are expected to take fresh positions, which may have an impact on domestic as well international prices. Market rumours of a possible sugar buying by Iran may provide a thin uptick to global prices.

“Technically, NCDEX Sugar June 2012 contract would find support at Rs 2,700 and Rs 2,750 per quintal, while the resistance is seen at Rs 2,930 and Rs 2,990 per quintal,” said Narvekar.

As long as prices do not close below Rs 2,800/2,790, sugar is here to make a fortune. Global prices are nearing the crucial support of 20 cents at the CME and should recover from here on. Only a break below this level could unsettle India’s export prospects, says Venkateswaran Karikar, AVP of commodity research at IIFL.

Source : mydigitalfc.com