Trade with Commodities: Sugar plummets on futures ban

Thursday, May 28, 2009

Sugar plummets on futures ban

SUGAR prices have plummeted anywhere between Rs 15 and Rs 30 per quintal countrywide post the futures-ban effected up to December 31 here on Tuesday. While in Delhi, wholesale price of the commodity plunged by Rs 30/qtl to the Rs 2,360-2,440/qtl level, in Mumbai, too, prices plunged. The price of S Grade sugar dipped by Rs 15/qtl to Rs 2,205/qtl whereas M Grade sugar price went down by Rs 20/qtl to Rs 2,250. Prices of the commodity are expected to go down further over the next week both on the spot and the futures market primarily on the back of rapid selling by traders immediately before and after the futures trade ban was imposed by the Forward Markets Commission (FMC).
    It is perceived that the dip in futures impacted the spot price of sugar in the domestic market. June contracts on the NCDEX dipped by 1.8% to Rs 2,266, while MCX July contracts for M Grade sugar went down by 1.6% to Rs 2,430/qtl while August contracts dipped by 2.66% to Rs 2450/qtl. "To the extent that prices have come down immediately in the wholesale, the objective of the futures ban—that of forcing out sugar stocked by traders or hoarded by speculators in anticipation of prices tightening in the future on the back of tight sugar supply in domestic markets—has been served. We expect this to keep wholesale prices down and impact retail prices as well," a government official stressed. The consumer affairs department was of the view that despite a weekly sugar release mechanism in place, millers and traders had found ways of successfully holding back sugar from the market.
    However, sugar output and demand-supply fundamentals will continue to persist unchanged in the longer term according to analysts and are unlikely to significantly impact sugar prices, retail in particular, in the longer term.
    For the sugar year 2008-09 (October-September), the output estimated is a record low of 14.50 million tonnes. In addition to a carryover stock of eight million tonnes and projected imports of 2.5 million tonnes, that is likely to just about cover an annual domestic consumption level of 23+ million tonnes, leaving virtually nil carryover stocks into the 2009-10 sugar year. This, even as the price of both imported raw and white or ready-to-eat sugar spirals upward in the global market in reaction to signals of big imports by India, which is among the world's biggest sugar consumers.
    Output estimates for 2009-10 are pegged at 20 million tonnes currently by the Indian Sugar Mills Association (ISMA), but the picture is still unclear. It is perhaps with these apprehensions in mind that the food ministry began exploring the creation of a buffer stock of at least three million tonnes of sugar to tide over the 2009-10 sugar year.