Spot sugar prices rebounded sharply from a recent low to hit the highest in three months, following a global move and traders returning to the market after almost three weeks.
The benchmark M-30 variety at the Vashi wholesale market jumped to trade at Rs 4,050 a quintal on Thursday, from a low of Rs 3,914 a qtl on June 29.
The M-grade contract for delivery in July hit the upper circuit on the National Commodity & Derivatives Exchange (NCDEX), to trade at Rs 3,816 a qtl. The far month sugar contract for delivery in October, however, remained relatively resilient on NCDEX, to trade at Rs 3,590 a qtl on concern regarding surplus carry-forward stocks from the current season and estimates of a bumper cane output for the next season.
"A cold wave has certainly hit the standing sugarcane crop in some areas in Brazil. Sugar prices in India have followed a global move," said an analyst with a large stockbroking entity. Raw sugar futures on the Chicago Mercantile Exchange jumped to the highest in nearly seven weeks on Thursday, on report of a frost attack on the crop in Brazil, the world's largest producer.
Sanjiv Babar, managing director of the Maharashtra State Federation of Co-operative Sugar Factories, said: "Traders were away from active purchase in the past few weeks, which reduced pipeline inventory. Their absence had created downward pressure on prices. Since traders have returned, sugar demand has improved, with a shallow pipeline stock resulting in an increase in prices."
Dealers and stockists have also started short covering in anticipation of rising festival demand during the next two months. Normally, the festival season beginning July witnesses a sharp increase in sugar demand and continues till Diwali. So, dealers and stockists build their inventory for the entire season.
In the domestic market, the price rise can also be attributed to increase in import duty from 40 per cent to 50 per cent on raw sugar. The government raised the duty two weeks earlier, in anticipation of increased production this year, following a normal monsoon.
"The current sugar price rise is a temporary phenomenon, due to: a) filling of the pipeline inventory through extra offtake in July, after having dried up in the second fortnight of June due to merchants' not lifting in protest at the GST (goods and services tax) levy (b) the initial impact of GST through channelising of e-way bills, which interrupted transportation and has since got sorted; and (c) supply disruption due to the movement of kanwarias (seasonal pilgrims in the north this month)," said Abinash Verma, director general of the Indian Sugar Mills Association.
Sugar companies' stocks jumped by up to 10 per cent on Thursday, with Shree Renuka Sugars in the lead.
Rating agency ICRA estimates India's sugar production in the 2017-18 crushing season (beginning October 1) at 23.5-24.5 million tonnes, an increase of 16-20 per cent from the previous year.
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