Sugar stocks hit lower filter on subsidy squeeze

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22 May 2021, New Delhi, IN: Shares of most sugar companies on Friday tumbled to hit the lower circuit. This in view of the government slashing the incentive on sugar exports from ₹6,000 per tonne to ₹4,000 from May 19 after global prices firmed up.

On Thursday, the government reduced the export subsidy from ₹5.85 /kg to ₹4 on any sugar contracted for export on or after May 20, 2021.

Shares of Sakthi Sugars, Bajaj Hindusthan Sugar, Dharini Sugars, Thiru Arooran Sugars, Simbhaoli Sugars and Dhampur Sugars have hit the lower circuit. Other such as Balrampur Chini, Ponni Sugars (Erode), Shree Renuka Sugars and Andhra Sugars ended lower between one and 4 per cent.

The government took the decision to reduce the export assistance, mainly to help transportation charges, because of high sugar prices in the global market.

Needs clarity

According to analysts, the government approved ₹6/kg subsidy for 6 mt exports under MAEQ scheme. According to them, while almost 5.7 mt have been being contracted, clarity is needed if the subsidy is available for all the contracted quantity or only for the actual exported quantity (and for which claims have been filed).

However, industry sources said that the 5.7 mt of sugar exported or contracted for shipments till May 19 would be eligible for the ₹6,000/tonne assistance. This, they said, would mean that only 0.3 mt of targeted exports six mt would not be able to avail of the sops announced earlier. 

The Indian government’s move resulted in raw sugar prices slipping by over 2 per cent on Thursday to 16.69 US cents a pound. The Government’s view of cutting the assistance was that raw sugar prices, which had been ruling at 14.20 cents a pound when the assistance was announced in December last year, had surged to over 17 cents a pound.

Enjoy premium

Also, Indian raw sugar exporters are enjoying a premium over the New York raw sugar prices as it is the only destination with exportable surplus. International sugar prices touched a 4-year high recently with white sugar prices in London and the raw sugar prices in New York averaging $461.8 per tonne and US cent 17.4 per lb, respectively.

Marketmen further said the impact of the move will be limited and sugar stocks will climb back due to weak global supply and Indian millers stand to benefit on firm price, they added.

The firmness in international prices is expected to continue for the next 3-4 months unless sugar output from the other major sugar producing and exporting nations starts coming in for the next season 2021-22, said CARE Ratings in a report.

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