After five consecutive seasons of supply glut and steadily falling sugar prices, is India’s sugar market finally turning the corner?

After five consecutive seasons of supply glut and steadily falling sugar prices, is India’s sugar market finally turning the corner?

The stock market certainly seems to think so, with many sugar producers’ stocks recently hitting their 52-week highs after the companies reported a turnaround in their financials for the quarter ended March 2016

In the domestic markets, retail sugar prices in the Mumbai market have risen from ₹30 a kg to ₹40 in the last one year. Sugar prices had last hit these levels way back in mid-2013.

 Wholesale prices have climbed from ₹2,397 to ₹3,691 a quintal in the same period, according to data from the Department of Consumer Affairs.

The recent rise in sugar prices, producers say, has resulted in more mills attaining break-even in recent weeks.

Most large sugar producers reported losses for the last two years as their ex-factory realisations on sugar dipped below production costs. 

Indian Sugar Mills Association estimates domestic sugar output in the soon-to-be concluded 2015-16 crushing season at about 250 lakh tonnes, about 11% lower than last year’s record output of 278 lakh tonnes. 

Should this estimate prove correct, this would mark the first year of a decline in domestic output after five straight years of surpluses. Sharp declines in sugar output in Maharashtra and Karnataka on account of the drought, even as Tamil Nadu produced slightly more than last year, have contributed to the output falling short of initial estimates.

Given the annual consumption of about 256 lakh tonnes and exports of about 15 lakh tonnes, recent production estimates would mean that industry will flag off the new sugar season (beginning October 1, 2016) with carry-forward stocks of just 70 lakh tonnes