How to read the sweetness and sourness of sugar stocks

Several sugar stocks have crashed after the Indian government levied excise duty on export after elevated prices in global markets had supported the multi-decade high sugar exports. But the healthy domestic consumption is expected to push down the inventory levels over previous season despite significantly higher net production in the ongoing season, especially from southern and western parts of the country.

Here are some factoids to keep in mind if you are still looking to dabble in the sector.

Production, demand-supply balance

Domestic net sugar production stood at 35.24 million MT (till June 6, 2022) in the ongoing crushing season, which is up 15% compared to 30.74 million MT in the same period the previous year. This is around 98% of the total expected sugar production for SY22 as per the latest estimate of industry body Indian Sugar Mills Association (ISMA).

ISMA has projected that production is expected to beat around 36 million MT for SY22 against 31.2 million MT last year, after considering around 3.4 million MT sugar being moved to produce ethanol.

With domestic consumption estimated at around 27.5 million MT and exports expected at 10 million MT in SY22, the closing stock is projected at 6.7 million MT as on September 30, 2022 as against 8.2 million MT in the corresponding period the previous year. As a result, the demand-supply balance is likely to improve from the last season which would support domestic sugar prices in the near term, according to rating and research agency ICRA.

Ethanol

Meanwhile, India achieved the target of 10% ethanol blending ahead of schedule with a level of 10.07% as on June 12, 2022. Moreover, over a dozen states have achieved a level higher than the national average as of end of last month.

Prices

Domestic sugar prices from producers in key producing state UP, are currently trending at around Rs 34.5-35/kg with higher seasonal demand, besides closure of crushing activities by most mills for SY22.

Internationally, while price of raw sugar has moderated, that of white sugar has climbed further. Price of raw sugar declined marginally to $425/MT last month, after pushing up to $434/MT in April 2022 compared to around $421/MT in March 2022 and $401-407/MT in the previous two months, amid geo-political tensions with likely higher diversion towards ethanol in Brazil due to high crude oil prices.

But the price of white sugar improved to $535-545/MT over the last three months compared to around $488/MT in February 2022, reaching the highest in the past five years in May 2022.