Traders halt off-take of sugar, fear price freefall

Stocks are mounting in Maharashtra's cooperative sugar factories, after traders halted lifting the commodity because of a continuous fall in its price.

They fear prices may soon bottom out due to the huge supply of sugar for January.

During the ongoing crushing season, mills have so far produced 3.36 million tonne (mt) of sugar and unsold stocks have touched 1 mt. Sugar prices are at Rs 2,585-2,630 a quintal, compared with Rs 2,850 a quintal on December 31.

The Centre has issued 1.7 mt of non-levy sugar for January, against 1.1 mt in January last year at the national level. In Maharashtra, sugar mills received 0.67 mt of non-levy sugar for January, against 0.37 mt last January.

Millers and traders say the market cannot absorb the increased non-levy sugar, and that it would lead to a crash in prices.

If the Centre fails to extend by at least three weeks the sale of the additional non-levy quota, they fear it would be converted into levy quota.

This would place an additional burden on mills' finances.

Yogesh Pande, founder president of the Maharashtra Sugar Merchants' & Brokers' Association, told Business Standard: "The cold wave in northern India has further exacerbated the situation, as sugar demand has been low.

"Traders say unless the government intervenes, sugar prices will go into freefall."

In the highly regulated sugar sector, it is mandatory for mills to follow the government's timetable on sale and despatch.

If they fail to do so, unsold non-levy sugar is converted into levy sugar and mills face stringent penal action.

"To avoid this, there has been panic selling by millers, further depressing sugar prices. Falling sugar prices may also lead to a drop in production, since millers are not keen to crush cane and sell sugar at a loss," explained Pande.

Federation of Cooperative Sugar Factories in Maharashtra, which represents over 150 mills, confirmed the poor sugar off-take.

"Millers are really worried about the sale and despatch of additional non-levy quota granted by the Centre for January.

"There has been low demand and prices are falling quite rapidly. Nearly 1 mt of sugar remains unsold," said a federation official.

The official said that a fall in sugar prices in Maharashtra has started to pull down prices in other sugar producing states such as Uttar Pradesh, Karnataka and Gujarat.

A Mumbai-based analyst representing a leading broking firm, who did not wish to be named, said: "If such a price fall continues, it may lead to lower production in Maharashtra.

"The state has already revised sugar production to 9.1 mt from 9.5 mt due to unseasonal rain. This is the peak crushing period, and poor off-take may create further problems for millers."