Sugar Stocks Shine on Record Sugar Exports

Sugar stocks may have been sharply up on 04-Oct, but if you look at sugar stocks from a slightly longer term perspective of 1 year, the outperformance is really visible.
 

Clearly, barring EID Parry, which has given a good performance, all the other major sugar stocks have given phenomenally strong returns. Sugar has been re-rated over the last 1 year for a number of reasons including export boost, better sugar prices and the big shift to ethanol. But the sugar spurt on 04-Oct was all about the export boost.

On 04-October, the ISMA (Indian Sugar Mills Association) announced the total sugar exports for the Sugar Cycle Year at 7.1 million tonnes, an all time record. In the sugar industry, the year coincides with the sugar crushing season and extends from October to September next year. That is also called the sugar year and that is period used for all sugar companies.

For the Sugar Year 2020-21, the exports at 7.1 million tonnes was 20% higher compared to 5.9 million tonnes in the sugar year 2019-20. There is an interesting shift that has happened in sugar in the last 10 years. Prior to 2010, sugar was always a cyclical sector but that has largely changed from 2011 onwards as sugar has stabilized due to huge buffer stocks.

For the sugar year 2020-21, the total sugar production is estimated at 31 million tonnes. If you add the 8.5 million tonnes of opening stock, that implies 39.5 million tonnes of sugar available. With domestic consumption at 26.5 million tonnes, the exports are expected to be at a record 7.1 million tonnes, after deducting the closing stock.

Sugar exports got a boost from higher sugar prices globally after the pandemic severely strained the supply of sugar from two of the world’s largest exporters viz. Brazil and Thailand. In addition, Indian government has given generous subsidies to ensure that Indian sugar producers get compensated for their higher cost of production. 

With ethanol blending picking up, the sugar situation is expected to stabilize further in the coming years.