Sugar stocks surge up to 20%; here’s why

Shares of sugar stocks continued their northward journey for the second day amid optimism that the government may allow additional sugar exports after evaluating the domestic production in January. The outlook for the sugar sector is also positive amid improved sugarcane crushing volume and favourable government regulation policies (sugarcane price/MSP/ethanol prices), which are intended for the survival of the weakest mill.

Reacting to the news, the share price of sugar stocks rallied up to 20% intraday on Monday, led by Dhampur Sugar, Sakthi Sugars, Avadh Sugar, Mawana Sugars, KM Sugar Mills, KCP Sugar & Industries, Vishwaraj Sugar Industries, and Ugar Sugar. In comparison, the BSE Sensex was trading 216 points higher at 61,554 levels.

Sakthi Sugars was the best performer in the sugar sector with a 20% gain, followed by Dhampur Sugar Mills, which jumped over 18%. Shares of sectoral leaders Balrampur Chini, Shree Renuka, Bajaj Hindusthan, and EID Parry also gained in the range of 2-10%.

Speaking on the sideline of the AGM of the Indian Sugar Mills Association (ISMA), Food Secretary Sanjeev Chopra last week said the government would assess the domestic production of sugar in January and then take a call on raising the quota for the current 2022-23 marketing year (October-September).

As of November 2022, India’s sugar production was 4.79 million tonnes (mt) (+1% YoY), led by Maharashtra 2mt (-1% YoY), followed by UP, which produced 1.1mt, +8% YoY. ISMA, in its first advance estimates for the marketing year 2023, has pegged sugar production at 36.5mt, assuming diversion of 4.5mt for ethanol. The government has announced a 6mt export quota and mills are estimated to have contracted for over 3.5mt already given robust global sugar prices.

In May this year, the government imposed ban on sugar exports, excluding the fixed quantity of sugar being exported under the CXL quota and tariff-rate quota to the EU and the U.S., effective from June 1 to October 31, 2022, to ease pressure from increasing global supplies. Domestic sugar prices have been stable in the past 3-4 months.

However, in November, the government allowed the export of 60 lakh tonnes of sugar for the current marketing year.  India, the world's biggest sugar producer, exported a record 111 lakh tonnes of sugar in the last marketing year (2021-22).

India is the world's second-largest sugar producer after Brazil. It exported sugar to 121 countries across the globe. As per government data, India had exported sugar worth $1,965 million in 2019-20, which rose to $2,790 million in 2020-21, and further to $4,600 million in 2021-22.  In the financial year 2021-22 (FY22), sugar exports jumped by 64.90%, despite logistical challenges posed by the Covid-19 pandemic in the form of high freight rates, container shortages, etc.

In 2021-22 (April-February), India exported sugar worth $769 million to Indonesia, followed by Bangladesh ($561 million), Sudan ($530 million) and U.A.E ($270 million). India also exported sugar to Somalia, Saudi Arabia, Malaysia, Sri Lanka, Afghanistan, Iraq, Pakistan, Nepal, China, etc. Indian sweetener has also been imported by the USA, Singapore, Oman, Qatar, Turkey, Iran, Syria, Canada, Australia, South Africa, Germany, France, New Zealand, Denmark, Israel, Russia, Egypt, etc.