Stock Market

Here is why sugar is on a 18-month high

Ritesh Presswala & Karthik Krishnan
Sugar has been on an 18-month high — no pun intended. The sweetening agent was trading at close to Rs 3600 a quintal (a quintal is 100 kg) on Wednesday. It also saw its biggest gain in a month.

One of the main contributors to the rise in sugar prices was Brazil’s gaining currency. The South American country is the world’s top producer and exporter of sugar and if its output falls, supplies will shrink, leading to a spike in prices. A weak real is good for Brazil’s exporters.

But during this year Brazil’s currency has gone up 15 percent so far against the US dollar – and that has made all the difference. Sugar exports from the country became uncompetitive. Therefore, there was a shortfall in supply. Other major exporters including India, Vietnam, Thailand and Pakistan looked to fill in the gap.

However, in India, drought played spoilsport and hurt the crop. The production fell as a result.

To be fair, the Cabinet had on April 28 given its all-clear to Food Ministry’s move to empower state governments to impose stock holding limits on sugar traders. But that still hasn’t had a great impact on prices coming down, thanks to the drought.

Sugar prices have overtaken Rs 40 a kg in most places. Reports suggest that India’s sugar output may come down to 25 million tonnes in FY16 (marketing year is between October-September), as against 28.3 million tonnes in the previous year.

While the price hike is certainly bad news for consumers, sugar mills and their investors have somethig to smile about.