Sweetness Of Sugar – Part 2 :)

Hello Friends, just an extension of our previous blog on Commodity Corner Series where we touched upon the aspects like seasonality,cyclic nature and analysis of price trend of Sugar.

Sweetness Of Sugar Part 2

Now we would read into the implication of falling production of sugar on stock market,market sentiment and the country’s import status.

Sugar Scrips Sweetens…

Falling production has sweetened sugar scrips.

Sugar stocks prices seems to remain strong for next three years.

The key drivers for such a strong up-cycle are:

1) Nominal production in current season as compared to consumption,

2) Lack of scope for further reduction in dealer stock level,

3) Increased cost of production as well as of import,

4) More sugar cane in India is being used to make jaggery that sells for almost double the price of white sugar.

In Diwali, sugar prices touched Rs. 35/ kg level.

This in turn helped all sugar companies to show growth as compared to current year’s net profit.

The most promising long positions and best return may be in sugar stocks like Shree Renuka Sugars and Balrampur Chini. Overall sugar stocks are bullish.

So take the best & calculated decision.

Imports Soaring……

For the 2009-10 crushing season (CS), the domestic and international price trends will depend on the production in Brazil, where producers should start favouring sugar over ethanol, as ethanol demand declines with falling crude prices.

With domestic consumption at 23 million tonnes for the next two years, & sugar consumption surpassing production, the country may import 3-4 million tonnes till September 2010.

The landed cost of imported sugar should be around Rs 19,000 a tonne. In the short term, the weaker USD will also support sugar.

The market seems to be in a set-up to move higher over the short run as India will continue to buy buying and the potential for imports will continue into 2009/2010 season.

……..Markets Bullish

Market sentiment has turned bullish, with the demand outlook boosted after the Indian government removed import duties.

A recovery in the world economy coupled with an increasing uptrend in these years leaves ahead sugar as a longer-term “buy and hold” commodity.

The factors that can determine the price direction for sugar futures in 2009 are:

1) If Dollar continues to rise in 2009, the upside potential for sugar could be limited,

2) Demand is a key factor for price direction,

3) A shift in acreage away from cane to crops like wheat, paddy and oilseeds as UP creating panic among farming community for Increase in cane payment arrears and delay in verdict on state advised price (SAP),

4) Mills are on the verge of early closure this season on limited availability of cane,

5) Government has come out with a policy to allow raw sugar imports to India,

6) Depreciating rupee and rising global prices, making sugar imports dearer & harden domestic sugar prices,

7) Greater diversion of cane towards the unorganized sector.

Concluding I would like to say that both the technical and fundamental outlook for the Sugar market appear to be bullish, but one is advised to trade with caution and stop losses.

🙂

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