What is Driving the Rally in Sugar Stocks?

A number of sugar stocks have suddenly seen a surge in prices in the last few days. In fact, stocks like Rajshree Sugars, Ugar Sugars, Sakthi Sugars and Bajaj Hindustan are either rat their yearly highs or very close to their yearly highs. The really has been broad based across the sugar stocks, but it is a number of smaller sugar players with a niche contribution to exports that have been doing extremely well. Incidentally, this rally in sugar stocks is also directly linked to hopes of a surge in sugar exports. It is now expected that the government may relent about increasing the quota applicable to sugar for the sugar cycle year (SCY) 2022-23. Let us first look at the current export quota is and what ISMA is demanding?

In India, sugar typically follows a cycle extending from October to September next, which is also called the sugar cycle year. For SCY 2021-22, the total exports of sugar were to the tune of 111 lakh tonnes. However, for SCY 2022-23 the government has cut the sugar export quota to just 60 lakh tonnes considering the need to keep the domestic supply of sugar intact and also ensuring that the prices of sugar remain stable within India. However, the Indian Sugar Mills Association (ISMA) has been demanding an export quota of 80 lakh tonnes for SCY 2022-23. Here is their justification for the same.

Data Source: ISMA

The ISMA, as explained above, is of the view that an export quota of 80 lakh tonnes would be feasible even after factoring in domestic consumption, ethanol usage and closing stock of 60 lakh tonnes.

The rally in sugar stocks is on the back of hopes that the government may seriously consider increasing the sugar export quota for the current SCY 2022-23 after doing a detailed assessment of the domestic demand situation. The current quota of 60 lakh tonnes is almost half of what was achieved last year. That is why the ISMA feels that 80 lakh tonnes would be a feasible number even considering that sugar output would be lower in this year. However, it now looks like the government may also agree to a higher sugar quota. This would also improve the remunerative prices for sugar on an average and also reduce the sugar outstanding for the sugar mills.

Meanwhile, the oil marketing companies (OMCs) would look to reach ethanol blending of 12% in 2022-23, resulting in about 550 crore litres of ethanol procurement. Most of this would come from the sugar industry and the sugar companies are going to get a much better realization with ethanol prices increased between Rs. 1.65 per litre to Rs. 2.65 per litre for different feedstocks. For now, the sugar industry is hoping that the boost would come from higher sugar export quotas.