PITCH REPORT

Nidhi Nath Srinivas NEW DELHI

THE government has given a festival gift to sugar companies by holding back supply that has led to a double-digit push up to retail prices in July.
    However, for consumers things may get worse in these inflationary times. NCDEX futures prices show mills are betting the government will continue to allow prices to rise another 15% by year-end. Sugar is one food item in India where prices are completely controlled by the government through the monthly release mechanism.
    The food ministry, with Maharashtra supremo Sharad Pawar at the helm, has allowed mills to sell 37.50 lakh tonne sugar in the current quarter. This is barely enough to meet 70% of total demand in these three months.
    With the pipeline drying up and festivals round the corner, the market sentiment has become exceptionally bullish in year when India has produced 120 lakh tonne extra sugar. Prices have shot up by more than Rs 150/quintal at the wholesale level across India in the last four weeks.
    In the Delhi wholesale market, sugar was selling for around Rs 15.60/kg at the end of June.
    Now it available for not less than Rs 17.10/kg. The rise in retail prices is even higher, with most shops charging Rs 20/kg.
    Aware that prices are rising, food ministry officials had been keen last week to urgently release more sugar into the open market. But as the minister is learnt to have put the decision on hold, mills have got even more time to enjoy the price bonanza.
    What is even more alarming is the likely price of sugar in December, when production will be at its peak in the new marketing year 2008-09.
    NCDEX December contract is currently ruling at Rs 1837, Rs 210 or 14% higher than the August price of Rs 1626. Logically, prices should be lowest in December due to supply pressure. However, punters are obviously betting that the government will silently acquiesce to a continuing spiral in prices.
    "A large number of people are writing cheques today to pay a 14% carry from today's price till December. Since the open interest is around 47,000, which shows ample liquidity, it is not as if some punters moving the market one way. It is reflection of market expectation," said a trader here.
    While mills are making hay while the sun shines, for consumers sugar prices have been a bitter experience. On the one hand, the taxpayer has paid for buffer stocks and export subsidy, and on the other, higher retail prices. The International Sugar Organisation says the world will have 7.8 million tonne (mt) excess sugar in 2007-08, which is the third biggest surplus ever. Though the world has produced around 168.7 mt sugar, it consumed only 161 mt.
    nidhi .srinivas @timesgroup .com