Expect prices to range between Rs 35-40/kg: Sakthi Sugars

Sugar stocks have had a great rally over the last one week. Many stocks are trading at multi-month highs. That is partly because local and global sugar prices have gone up quite significantly and production forecast have also been cut for the year indicating that prices might remain firm.

In an interview to CNBC-TV18, M Manickam, managing director of Sakthi Sugars says, he expects the sugar prices to range between Rs 35-40 per kilogram. "We expect that Rs 35-40 should be a realistic price band. The government should live with it," he adds. Below is the edited transcript of his interview with Udayan Mukherjee and Sonia Shenoy. Q: Prices in Maharashtra soured to Rs 37 per kilogram last week, do you think it is sustainable? A: I have been maintaining earlier that we should minimum have Rs 35. I think Rs 35 minimum should be sustainable because that is a breakeven price for the sugar factories today. Q: What kind of a range do you see for the next three months or so? A: I think it would be between Rs 35 and Rs 38 or Rs 35 and Rs 40 maximum, because we have enough stock of sugar in the country. So, it is not that we have a shortage of sugar. Just that the input parity and the export parity have moved up. That is basically the reflection that we have today. Q: How do you expect the government to move, given that price has moved up such a lot? The stock exchanges put a 10% additional margin on sugar, but given the inflationary situation, if prices do go to Rs 38-39 as you are suggesting, do you expect any kind of clamping down from the government? A: Hopefully not because we already have a drought. Today, the farmer needs additional money in his hand. Whatever we are seeing today is basically the ramification of what the government did by putting too much of controls about three years back where the prices collapsed and the farmers were given arrears and all that stuff. So, we expect that Rs 35-40 should be a realistic price band. The government should live with it. Given the cane price of Rs 2,500, it is a reasonable price to be. Q: But given that the government is so overwrought about inflation right now, do you think that it may want to keep it as close to that Rs 35 mark as possible? A: Could be possible. I think the quickest solution for inflation is to stop NREGA. The biggest driver of the inflation is demand driven because of Rs 40,000 crore being pumped into the economy. So that is a problem. But that is nothing to do with commodity price or anything else. _PAGEBREAK_ Q: Let me ask you about the global situation, do you see global prices remaining this firm? A: They should because there is a slight surplus. They are talking about something like four-five million tonne surplus in the current year. So that is not too much. I think the inventories can still take it because you have countries like China, Russia who are perpetual importers. You have a drought in America which will actually increase the corn prices consequently ethanol demand will go up. So, we expect Brazil will shift into ethanol more than sugar. Q: What is the local production situation? Earlier, the production target from ISMA was 25 million, now I think people are talking about 23 million. What do you think is realistic? A: The mistake we make is trying to make a prediction far ahead of the season. Realistically, we could probably make an early estimate sometime in December and possibly a definite estimate sometime in March of 2013. So, any numbers that we say at this point of time would be purely speculative. I don’t think it is right time to make any comment upon what will be the production next year. So, even if the production were low, we have enough opening stocks. So, there should not be any problem for the consumer to look at it. Q: I was talking about the supply/demand gap, what do you expect that to be roughly this year then? A: This year we will be surplus, infact we are talking about 26 million production and 22 consumption. So, we have about four million surplus, maybe we will export about two million. So, we still have a closing stock increase of about two million tonne.