Sugar prices have jumped by about 10% over past five days after the central government kept the amount of sweetener sugar millsNSE -2.04 % can sell in open market in July lower than normal monthly limits and industry expectations.
According to traders, price of S-30 grade sugar in Mumbai has increased to Rs 32 per kg on Tuesday from Rs 29/kg on June 28.
“Lower quota has created a shortage-like situation, lifting the prices upward,” said Ashok Jain, president at Bombay Sugar Merchants’ Association.
The government has lowered sugar sales quota to 16.5 lakh tonnes in July, against 21.5 lakh tonnes in June.
Jain said the industry was expecting a quota of 19-20 lakh tonnes.
Rise in prices has also slowed sugar exports as millers are now more interested in selling in domestic market, instead of bearing losses in exports.
The government has made it mandatory for mills to export 2 million tonnes of sugar in 2017-18 season ending September, due to record production estimated at 320 lakh tonnes. The country consumes about 250 lakh tonnes of sugar in a year, or about 20-21 lakh tonnes every month.
However, exporters complained that most millers are not willing to export sugar now due to increase in domestic prices.
The exporters were offering about Rs 20/kg for sugar export. Including producer subsidy of Rs 7-8/kg, depending upon the sugar recovery percentage of each mill, millers were getting about Rs 27-28/kg for exports.
With the minimum selling prices (MSP) of sugar in the domestic market set at Rs 29/kg, mills had to bear losses of Rs 1-2/kg to Rs 200/kg when they exported. Now, with domestic prices rising to Rs 32/kg, the losses on exports have increased to Rs 4-5/kg.
Abhijit Ghorpade, a sugar broker from Maharashtra, alleged that the government decision to lower sugar sale quota for the month has been taken in the interest of a section of influential traders. “The Uttar Pradesh government too had demanded a higher quota so as to help mills clear cane price arrears by doing more sugar sales. Yet the quota has been kept lower,” he said.
The UP government had asked for 60% higher quota for July over June. However, its demand was not accepted by the central government.
Meanwhile, Uttar Pradesh Sugar Mills Association has demanded removal of monthly sugar sale quota system as the government has now set MSP for sugar.