Sugar stocks extend decline as govt restricts exports. All you need to know

Shares of most sugar companies dropped again on Wednesday, stretching their losses for a second day, after the central government on Tuesday imposed restrictions on exports to ensure adequate food supplies in the country.

Shree Renuka Sugars, Bajaj Hindusthan Sugar, Balrampur Chini Mills, Mawana Sugars, Ugar Sugar Works, Uttam Sugar Mills and Dwarikesh Sugar were all down in morning trade on Wednesday.

Dwarikesh Sugar was more than 8% lower while shares of Balrampur Chini, Dalmia Sugar and Triveni Engineering were more than 6% lower each.

Mawana Sugars, Dhampur Sugar, Ugar Sugar and Avadh Sugar were down 5% each while Shree Renuka, Bajaj Hindusthan and Andhra Sugar were each trading 3% lower.

But why are sugar stocks falling?

The shares fell after the government decided to restrict export of sugar to 10 million tonnes with a view to maintain domestic availability and price stability during the sugar season 2021-22 (October-September).

As per the order issued by the Directorate General of Foreign Trade (DGFT), with effect from June 1 till October 31, or until further orders, sugar exports will be allowed only with permission of the Directorate of Sugar, Department of Food and Public Distribution.

Barring the recent fall, how have sugar stocks performed over the past year or so?

Sugar stocks have outperformed the benchmark indices and most other sectors. According to Bloomberg, an index of 15 top sugar stocks is trading above the 3-standard deviation line over an eight-year period, thanks in part to rising exports. Many companies like Dwarikesh Sugar, Uttam Sugar Mills and Mawana are up more than 50% year to date.

Shares of Shree Renuka, India’s most valued sugar company, are trading around three times the 52-week low even after falling by a third since their 52-week high.

Why did the government restrict exports till October-end?

This is to match the sugar season in India. Each agriculture crop has a different season, and depends on sowing and harvesting. The sugar season in India starts from October and ends the following September.

Typically, sugar mills in Karnataka start crushing in the last week of October. Mills in Maharashtra begin in the last week of October to early November while Uttar Pradesh mills start in November.

This means that generally, up to November, supply of sugar takes place from previous year’s stock. The government has restricted exports until the end of the current season, so that it has enough inventory for the initial months of the new season.

So, how much does India need to meet local supply?

India’s domestic monthly requirement is around 2.4 million tonnes during the festive months of October-December. This means the country must have a stock of 6.0-6.5 million tonnes for two-three months.

The government’s ban will ensure that the closing stock of sugar at the end of the current sugar season (September 30, 2022) will be around 6.0-6.5 million tonnes.

Have sugar exports from India risen in recent years?

Yes, they have. India has been the highest producer and the second-largest exporter of sugar in the world in the current year. The decision to cap exports came in the light of record exports of the commodity.

India exported only about 0.62 million tonnes in the sugar season 2017-18. Shipments jumped to 3.8 million tonnes and 5.96 million tonnes during the 2018-19 and 2019-20 seasons.

In sugar season 2020-21, against a target of 6 million tonnes, about 7 million tonnes have been exported.

In the current sugar season 2021-22, contracts for export of about 9 million tonnes have been signed. Of this, about 8.2 million tonnes have been dispatched from sugar mills for export and about 7.8 million tonnes have been exported. Export of sugar in the current season is the highest ever, the government said.

The government also said that it restricted exports taking into consideration the “unprecedented growth” in sugar shipments and the need to maintain sufficient stock in the country as well as to keep prices of sugar under check.

Are sugar prices rising in the country?

The government says it has been continuously monitoring the situation in sugar sector including sugar production, consumption, export as well as price trends in wholesale and retail markets.

In the last 12 months, prices of sugar have remained under control. Wholesale prices of sugar have ranged between Rs 3,150 and Rs 3,500 per quintal while retail prices are in the range of Rs 36-44 in different parts of the country.