Hi aLL
Just need your opinion on what would be the future of Sugar Industries?
Thanks in advance
Aravind
Market Matrix: Current Sugar Sector scenario - 24 Feb 2007
By Sharad Khandelwal - A Stock Market Vedic Theory analyst
The fall in the price of sugar over the last few months is almost drastic. The glut of sugar in the market is the reason behind this. While production this year is expected to grow to around 23 million tonnes from 19 million tonnes last year, consumption has more or less remained the same, staying around 19 million tonnes. Sugar prices go through alternating periods of sustained rise and fall as part of the 4-5 year sugar cycle. It is expected prices to stay at these unremunerative and loss making levels for one and a half years. In the space of 3 months, the price of sugar has dropped from around Rs.1800 per quintal to around Rs. 1400 per quintal. Of the 470 factories in India, not even one is able to make a profit.
The sugarcane farmers will ultimately feel the impact of the fall in prices. As mills run into losses, the payments to farmers will be delayed. Cane planting will go down, and crop patterns will change with farmers shifting to other crops resulting in decreased availability of sugar and the onset of the next stage of the cycle.
The biggest swing factor when it comes to global sugar prices are Brazil's production levels. The sugarcane crop in Brazil is 7% higher than last year, and as prices of crude oil fall, factories in Brazil are shifting from the production of the alternative fuel ethanol to sugar resulting in a well-supplied global market.
India has a fragmented farmer structure, while abroad there is a (more consolidated) factory farming structure. We can not match their competitiveness in the market. The introduction of export subsidies could help increase India's competitiveness.
While the prices of sugar are cyclical, there are fixed prices for ethanol and power, these investments would help in diversifying the income base of good sugar companies. The distillation and power profits are being eaten up with present low sugar prices.Therefore, sugar scrips are likely to remain under pressure and would make a surge only if crude and sugar prices firm up both in national and international market.The decision to create buffer stock of 2 million tonnes and export subsidy to help sugar stocks from free fall. Book profit in case you have bought lower.
Hari Om
BIRDINFO Stock Rx - A Vedic Prescription for stock market