Shares of sugar companies jumped 20% on Wednesday as stockists and retailers continued their purchases ahead of the festival season. Forecasts for lower production and reports of government subsidies have boosted the price of the commodity in domestic markets, which, in turn, reflects the positive momentum in shares prices of listed sugar companies.
Shree Renuka Sugars surged 18% on Wednesday and has rallied more than 40% in the last four sessions with large trading volume to close at Rs 10.12 per share. More than 2.69 crore shares changed hands on the BSE and NSE, up 8.19 times the 30-day average daily volume.
Dwarikesh Sugar Industries hit its upper circuit limit of 20%, while Dalmia Bharat Sugar gained 15%. Bajaj Hindusthan ended with a 10.62% gain while KM Sugar Mills surged 16%.
Sugar cane production in Brazil, the world’s largest sugar producer, has declined 2.1% to 412,624 million tonne and sugar output is down 11% on year, as sugar mills have been converting more cane to ethanol, according to global industry body International Sugar Organization. Traders are focussed on an expected decline in production in India, the second largest producer of sugar from cane.
The ISO has forecast a deficit of 2.5 million tonne and the US Department of Agriculture has predicted a shortfall of 3.8 million tonne for the 2015-16 season. The Indian Sugar Mills Association is predicting production to fall 5% this year to 28.3 million tonne because of insufficient rainfall, with rains down 14% from normal because of the El Nino weather phenomenon.
Prices of sugar have risen 31% since dropping to a seven-year-low on August 24, driven down by a weakening Brazilian real against the dollar, as experts foresee the world slowly depleting its stockpiles that stand the highest level in 35 years.
Morgan Stanley said in a note on Monday that the real’s influence on sugar prices is waning as traders eye the first season in six years in which demand is expected to outstrip production. The firm said it expects demand to top production by 3.7 million tonne in the year beginning October 1.
UK-based financial services firm Marex Spectron said the deficit is probably here to stay for at least a couple of years, and production will only increase substantially if the price moves high enough to encourage it.
On Wednesday, stocks such as Bannariamman Sugars, Balrampur Chini Mills, Dharani Sugars, EID Parry, Oudh Sugar Mills, and Sakthi Sugars each ended with 2-5% gains.
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