Seasonal trends could keep domestic sugar prices stable despite global concerns about short supply, predicts Shree Renuka

Sugar prices in India have always been subject to various factors, from weather conditions to government policies. With the launch of the Global Biofuel Alliance during the G20 Summit and government initiatives aimed at increasing ethanol blending in fuel, there is a projected increase in sugar demand beyond its traditional use for consumption.

This development coincides with recent reports, which indicated that Switzerland-based trader Avlean anticipates a potential shortage in sugar supply this year due to an anticipated production decline in India, the world's second-largest sugar producer after Brazil.

India experienced a 36 percent rainfall deficit in August, marking the driest August in a century. This drought-like condition has raised concerns about the impact on this year's Kharif crop, including sugarcane. The two major sugarcane-growing regions of Maharashtra and Karnataka saw rainfall levels approximately 50 percent below the average for the year.

Sharing key insights on the dynamics affecting sugar prices in the country, Atul Chaturvedi, Executive Chairman of Shree Renuka Sugars, said CNBC-TV18 that the intriguing relationship between sugar prices, the timing of the season, and the government's role often shapes the industry's future.

He stated that India operates as a tightly regulated market. However, he does not anticipate a substantial surge in Indian prices (sugar prices). While there might be a slight increase in tandem with global values, an extreme spike is out of the question, he says.

One key observation made by Chaturvedi is that sugar prices tend to be higher toward the end of the season and it’s a temporary phenomenon. He said, “The domestic sugar prices at this time of the year normally would be high because this is the fag end of the season. So, I don't see sugar prices going up much further, maybe marginal here and there.”

To address these fluctuations and maintain a balance between sugar and ethanol production, Chaturvedi suggested that the government needs to act. Specifically, he recommended increasing ethanol prices to make it more attractive for sugar mills to divert their production toward ethanol. This strategic shift can help in stabilising sugar prices and ensuring a sustainable supply of ethanol, which is crucial for the country's biofuel goals.

Discussing ethanol, Chaturvedi emphasised that it is imperative for the government to raise ethanol prices adequately to maintain its attractiveness for the sugar industry in comparison to sugar. He expressed confidence that the government is well aware of this situation. Considering the rising global sugar prices and a modest increase in India (not to the extent of boiling), he suggested that ethanol prices will likely need to be adjusted upwards next year.

Chaturvedi proposed a minimum increase of Rs 5 per litre in ethanol prices to incentivise sugar mills to produce more ethanol. Such a step could encourage the industry to focus on ethanol production without compromising on the sugar supply. This approach aligns with the government's vision of promoting ethanol blending in fuel to reduce reliance on fossil fuels and address environmental concerns.

The anticipation of lower sugarcane output has also prompted speculations about India potentially imposing a ban on sugar exports, which would be the first such ban in seven years. These concerns about reduced production and potential supply shortages have led to a surge in sugar prices in global markets.

For more details, watch the accompanying video