Sugar prices crash on panic sales in Maharashtra .

Chennai, April 20 Fears that the Centre will convert unsold free sale sugar quota to levy (for distribution through ration shops) have led to panic sales of the commodity by mills, particularly in Maharashtra.

“Some mills in Maharashtra sold sugar at Rs 2,500 a quintal on Monday,” said a trade source.

Mr Prakash Naiknavare, Managing Director, Maharashtra State Federation of Cooperative Sugar Factories, said fundamentally, there was no reason for the steep fall in the prices.

Weak sentiment

Though reports said that the Centre may withdraw the zero-duty facility on white sugar imports, a weak sentiment prevailed in the market.

Prices on the wholesale market for M-30 grade dropped Rs 25-40 a quintal to Rs 2,840-2,915. S-30 grade dropped Rs 10-30 to Rs 2,780-2,860. Both the grades touched Rs 4,000 in the first week of January. At the mill gates, traders picked up S-grade sugar at Rs 2,510-2,590 a quintal against Rs 2,580-2,620 on Monday.

Cooperative mindset

Last month, the Maharashtra Federation decided not to sell sugar below Rs 3,250 a quintal.

“It lasted hardly for a day. Prices have been continuously declining since then,” said a trader.

“It is difficult to make all the 165 sugar mills in Maharashtra change the cooperative mindset they have,” said Mr Naiknavare.

“If you see the trend in the last 10-20 years, you can see that sugar commands premium during April when soft drinks' companies place huge orders. This year, we are seeing prices dropping. Surprisingly the drop comes when there are no stocks in the pipeline,” he said.

An official of the industry said mills were helpless in the face of falling prices, which are totally unviable.

A memorandum by the Maharashtra Federation to the Centre said the cooperative mills had paid farmers Rs 2,250 a tonne of cane as advance besides incurring transport charge of Rs 275. The mills would have to release one or two more instalments of payment before declaring the final cane price that would be higher than the net production cost.

“The average conversion cost of Rs 500 will necessitate sugar prices to be at least Rs 3,250 a quintal (without duty) against the existing price of Rs 2,500,” said Mr Naiknavare. In contrast, the landed price of sugar is $520 (Rs 23,200) a tonne c&f. This is because of the fall in the global prices following reports of better crop in Brazil and India.

Rupee's rise

Global prices have dropped from a high of $766 in January to $490. The rise in the value of the rupee against the dollar from 46.34 to 44.80 has also compounded the mills' woes. Besides, a global trading house has offloaded its long positions in sugar futures.

Domestic sugar production, which was initially estimated below 16 million tonnes (mt), is projected to be 18 mt. In Brazil, the production is estimated to be 33 mt.

On the other hand, the drop in the global prices has led to cancellation or “washout” of import deals.

Trade sources said at least a couple of deals have been struck by bulk users to import sugar at over $600 a tonne.

Instead of importing sugar at $600 a tonne, these users have opted to pay $130 a tonne to cancel the deals, the sources said.

Meanwhile, the Maharashtra State Federation of Cooperative Sugar Factories said it was “absolutely necessary” for the Centre to revisit its decision of allowing duty-free imports of white sugar to inject confidence in the domestic sugar market.

If the Centre does not act immediately, sugar prices could drop to around Rs 20 a kg, jeopardising the interest of the growers as cane price makes up 70 per cent of the ex-mill sugar price.

Source : Business Line