Sugar prices heading for highest weekly gains in 3 months: Angel Broking

Views of Mr. Ritesh Kumar Sahu (Fundamental Analyst - Agri Commodities, Angel Commodities Broking):

"Sugar futures heading for biggest weekly gain in almost 3 months on reports of lower production and expectation of tight balance sheet towards end of the current sugar season. The sugar season begins in October and lasts until September the following year. The most active May delivery contract on National Commodities and Derivative Exchange (NCDEX) rose 1.83% during the week to Rs. 3,780 a quintal till 3.30 pm on Friday. Weekly gain of more than 1.80% was last seen during the first week of January.

During the first quarter of 2017, sugar futures on NCDEX touched it's all time high during the February but the prices corrected on reports of higher stocks with the sugar mills coupled with reports of drop in sugar sale as compared to last year. The government had appealed sugar millers across the country to keep supplies adequate. Government also open to reduce import duty if mills create any artificial supply crunch by holding back sugar stock.

NCDEX sugar hit lowest level in 2017 at Rs. 3,590 per quintal during second week of March and now recovered about 5% in a fortnight on expectation of lower stock levels as there is possibility of increase the summer demand from the bulk and industrial buyers when market is expecting lower production for the second successive year compared to its consumption.

As per Indian Sugar Mills Association (ISMA) and Investment Credit Rating Agency (ICRA), Indian mills are likely produce about 203 lakh tonnes (lt) of sugar during the SY 2016/17 year—the lowest in seven years— and 19% lower than last year production of 251 lt. Moreover, sugar mills have stopped crushing early this year due to insufficient availability of sugarcane in the states of Maharashtra, Karnataka and Tamil Nadu. Thus, physical market players are expecting much lower production at 195-200 lt on lower average sugar recovery for the sugarcane due to drought in the last two-years.

To limit the speculative trading, NCDEX has earlier imposed special cash margin for buy side at 45% in January 2017. But now it has reduced the special cash margin by 10% to 35% on long side on all the running contracts and yet to be launched contracts from Monday, April 03, 2017.

Despite the lower production estimates, government is ruled out any possibility of imports due to expectation of sufficient stocks available with mills from the previous year coupled with lower consumption estimates for current sugar season. However, it is expected that the prices may remain firm in the coming months due to deficient production forecast and diminishing stocks in domestic market."

Source : Equity Bulls

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