Sugar Stocks Extend Gains Amid Production Concerns
Sugar stocks saw continued growth on March 19, with gains up to 7%, driven by concerns over a potential production shortfall. Despite reassurances from the Indian Sugar and Bio-energy Manufacturers Association (ISMA) about sufficient sugar availability for the 2024-2025 market season, shares of companies like Uttam Sugar Mills, Balrampur Chini Mills, and Shree Renuka Sugars rose significantly. The increase in stock prices is linked to reduced production forecasts from India and Brazil, and global sugar prices are also rising in response to supply concerns. Weather conditions, particularly droughts in Brazil, have impacted sugar production. However, ISMA has assured that domestic supply will be stable.
Market Performance
On March 19, sugar stocks continued their upward trend, gaining up to 7% following a strong rally in the previous trading session. This movement was primarily driven by industry concerns regarding a potential production shortfall. However, the Indian Sugar and Bio-energy Manufacturers Association (ISMA) has reassured that there will be adequate sugar availability for the 2024-2025 market season (October-September).
Despite this clarification, shares of Uttam Sugar Mills rose over 7% to Rs 247 per share, while Balrampur Chini Mills recorded a 6% increase. Shree Renuka Sugars also witnessed a nearly 5% rise. Other companies that saw gains included:
- Dalmia Bharat (+5%)
- Sakthi Sugars (+5%)
- Bajaj Hindusthan Sugar (+5%)
- Mawana Sugars (+5%)
- Dwarikesh Sugar Industries (+5%)
- Rana Sugars (+4%)
- Dhampur Sugar Mills (+3%)
- EID Parry India (+3%)
Production Concerns and Market Trends
The rise in sugar stock prices comes amid industry estimates indicating a potential decline in sugar output from two of the largest global producers, India and Brazil. ISMA revised its sugar production forecast for the 2024-2025 season, reducing it from an initial estimate of 27.27 million metric tonnes (MMT) to 26.4 MMT.
Global sugar prices also responded to these supply concerns, with the most actively traded raw sugar contract in New York reaching a three-week high on March 18 and continuing to gain.
Additionally, the International Sugar Organization (ISO) revised its forecast of a global sugar deficit for the 2024-25 season, raising it to -4.88 MMT from its previous estimate of -2.51 MMT in November. This deficit contrasts with the 1.31 MMT surplus recorded during the 2023-24 season.
Impact of Weather Conditions on Production
Prolonged dry conditions in Brazil have intensified concerns over the global sugar supply. Conab, Brazil’s government crop forecasting agency, recently revised its sugar production estimate for the 2024-25 season, lowering it from 46 MMT to 44 MMT. The decrease has been attributed to lower sugarcane yields caused by drought and excessive heat.
Industry Assurance on Supply Stability
Despite these developments, ISMA has reiterated that sugar availability will remain sufficient to meet domestic demand. The organization also highlighted that the 2024 monsoon has improved cane planting, particularly in key sugar-producing states such as Maharashtra and Karnataka.
Summary
Sugar stocks have maintained upward momentum amid concerns of lower global production and rising sugar prices. While market estimates indicate a possible supply shortfall, ISMA has reassured that domestic availability will remain stable. The ongoing dry weather in Brazil and global production estimates will likely influence market trends in the coming months.
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Source : Samco
