Sugar stocks witnessed a massive rally on Wednesday after reports suggested that Avlean, a Switzerland-based company, said that it expects a sixth straight year of sugar deficit as supply would be affected due to a bad crop in India. It said that global markets will face a 5.4 million metric ton deficit of the sweetener in the coming season.
India is the second largest producer of Sugar, followed by brazil, according to data released by Statista. Sugar stocks are being watched as a deficit in supply would lead to pricing-led growth for companies, thereby increasing their revenues.
Shree Renuka Sugars (up 8.30 percent), E I D-Parry (up 7.03 percent), Dwarikesh Sugar Industries (up 5.87 percent), Triveni Engineering and Industries (up 4 percent), Dalmia Bharat (up 3.02 percent), and Balrampur Chini Mills (up 2.62 percent), were all in the green.
In August, Reuters reported that India might ban sugar exports, halting shipments for the first time in seven years, as a lack of rain has reduced sugar production in the country. This move is expected in the upcoming season starting in October, as a result of reduced cane yields due to insufficient rainfall.
Maharashtra and Karnataka together account for more than half of India’s total sugar output. Monsoon rains in these states have been as much as 50 per cent below average so far this year. Overall, India faced a 36 percent rain deficit in August, which was the driest August in a century, leading to speculation that the Kharif crop output including sugarcane would be hit this year.
Analysts say that a demand-supply mismatch will lead to higher prices, which will improve margins for sugar producers. However, sugar mills are worried that the production could drop sharply. Moreover, elevated diversion of sugar to ethanol and alcoholic beverages will drive prices higher in the near term, barring government interventions, they say.
Sugar inventories are aty their lowest in the last five years and domestic sugar prices have moved higher since April. Analysts at ICICI Securities believe that sugar prices are expected to remain firm until November 2023 (as crushing starts post-Diwali).
Written by Simran Bafna
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