Sugar prices likely to fall in near term: Report

Sugar prices are expected to decline in the near term on higher carryover stocks and lower prices globally, IMaCS, a subsidiary of leading credit rating agency ICRA, said today.

World sugar prices are expected to decline in SY (sugar year) 2013 given the prospects of production surplus for the third consecutive year. Ending stocks are forecast to increase which could put pressure on world sugar prices, IMaCS said in a report.

The sugar year (SY) in India is from October-September. Production of the sweetener is expected to decline by around 2.4/2.6 million tonnes (MT) during SY2013 to around 24 MT.

Taking into account the carryover stocks of about 6.8 MT from SY2012, total availability of sugar in SY2012 is estimated at around 30.7/31 MT tonnes, the report said. By comparison, consumption is expected to increase to 22.7-23 MT, resulting in a surplus of around 8 MT.

Considering the ending stocks of 6.1 MT, exports are forecast to decline from 3.5 MT in SY2012 to around 2-2.2 MT during SY2013, it said. The outlook for by-products such as fuel ethanol is uncertain given the expected decline in sugar production during 2012-13 and low prices for ethanol fixed by the government, the IMaCS report said.

After three years of high growth when production increased at an annual rate of 22 percent, India's sugar production is forecast to decline around 8-9 percent during SY2013 to 24 MT primarily because of decline in cane production, it said.

Besides, cane diversion for gur (jaggery) could be higher because of higher growth in gur prices vis-a-vis sugar, higher cane arrears, and weakening financial performance of sugar mills, it said.

The production of sugar in India is dependent on the production and availability of sugarcane and its usage towards production of sugar, gur, and khandsari.

India's sugarcane output is forecast to dip by 6.2 percent during SY2013 because of 6.5 percent decline in yields caused by deficient monsoon at the start of the season.

Driven by the continued switching from gur to sugar, rising incomes, and growing population, country's sugar consumption is projected to increase by 2.5-3 percent annually in the medium term.

The demand from food industries and other non-household users, estimated to account for about 60 percent of total consumption, could provide additional impetus to longer-term market growth, the report said.