Sugar prices to remain stable despite lower production: Report

Sugar prices are expected to remain stable or slightly higher at Rs 34-35 per kg in the coming months following the surplus situation even as the production is likely to fall during 2019-20, according to a report. India will have a supply glut and closing stock of about 13 million tonnes of sugar for 2019-20, even if domestic consumption and exports are taken into account, according to Care Rating report.

This quantity will again continue to be more than the normal requirement of 2-3 months sugar stock which is around 4-6 million tonnes of sugar, it added. The surplus situation is likely to keep the domestic sugar prices under pressure even when sugar output is expected to fall during the year 2019-20, it said.

Thus, we expect sugar prices to remain range bound or increase moderately and average in the range of Rs 34-35 per kg in the coming months, the report added. The average sugar price in India has been on a declining trend since the beginning of the sugar season 2017- 18, on account of a surge in sugar production during the year.

Sugar production in India jumped by 57 per cent on a year-on-year basis to 32.5 million tonnes in 2017-18. The prices that averaged at Rs 39 per kg in October 2017, fell to the lowest level of Rs 28 per kg in May 2018.

To prevent the downward trend in prices, the government fixed the MSP for sugar at Rs 29 per kg on 6 June 2018. As a result, the prices increased and averaged at Rs 32 per kg in June 2018 and grew further to Rs 34 per kg in July 2018. The prices, however, fell in the next month and remained in the range of Rs 32-33 per kg during August 2018- January 2019.

To provide support to the prices, the government further raised the MSP to Rs 31 per kg on February 14, 2019. The prices, in turn, averaged at Rs 33-34 per kg during April-June 2019.

Meanwhile, the expected fall in production is mainly due to lower estimates for Maharashtra and Karnataka. The output from Maharashtra and Karnataka is expected to go down by 34.7 per cent to 7 million tonnes and 19.8 per cent to 3.5 million tonnes, respectively, during the year.

While production is expected to fall, the opening stock for the new season 2019-20 stands at an all-time high of about 14.5 million tonnes. Considering production and opening stock, India will have an availability of 42.7 million tonnes of sugar to fulfil the domestic and export requirements.

Domestic consumption can be expected to grow by 2.5 per cent and be around 26.7 million tonnes. In addition to this, exports can be around 3 million tonnes (provided government support exports) assuming that India will export the same quantity of sugar the country had exported last year when there was high sugar production.