Sugar market dynamics point to 10-15% price drop soon – Journal

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LAHORE: The price of sugar, which currently hovers at Rs 96 per kilogram, could drop 10-15% over the next two to three weeks if market watchers are to be believed.

“In fact, it should have gone down if market dictates were to be done, but the financial strength of the millers and their capacity to hold it back,” says a local dealer.

Explaining the background to the expectations, tea leaf readers argue that sugar factories currently hold 1.58 million tonnes in their stocks. In June, their monthly releases fell to 270,000 tonnes (against 350,000 tonnes in May) as hoarding loses its commercial appeal.

About lowering the decoy, they say the next grinding season is likely to start in early November, leaving only four months behind. At the rate of 270,000 tonnes per month, the millers would release less than 1.1 million tonnes, leaving around 500,000 tonnes carried over.

The anatomy of sugar making next season also leaves no room for optimism from a millers perspective.

The financial power of the millers, the ability to retain the price intact

According to crop data, cane now covers 2.148 million acres in Punjab, 12% more than last year. The millers produced 3.75 million tonnes of sugar last season and are expected to produce 4.5 million this year, some 800,000 tonnes more than the normal annual discharge that also feeds the Khyber Pakhtunkhwa, Gilgit-Baltistan and the ‘Azad Jammu and Kashmir. The fact that the Federal and KP governments are currently importing sugar precludes the possibility of its export, which may also contribute to lower local prices.

According to the local dealer, the scene for a drop in prices was set by the amended Sugar Factory Control Law that was notified at the end of last month. He transferred control of the sugar crushing season from the millers to the government, which now favors the farmers. The law empowers the government to decide when to start the grinding season.

The 15-day credit cycle, which was part of the rules (Rule 14, sub-rule II), is now part of the Act. The cane commissioner was also empowered to follow up on farmers’ complaints, set liability and recover it through land revenue methods (arrest, seizure and sale of the property of defaulting millers). The millers are required to pay the farmers through bank accounts, which saves them various deductions. All of these measures made the law more favorable to farmers and the sugar industry, and further lowered the commercial luster of hoarding.

“The price should have come down now if market realities had taken hold,” says Rao Akram of the Karyana (retail) Merchant Association.

The millers keep supplies tight and the price high. Otherwise, the current position of the stock, its selling chances, the next season fast approaching, and the potential production next season all point in one direction: lower prices. But how long can the millers hold inventory and keep the price high? The situation may be decided next week or so, Akram hopes.

“The price will not drop until October,” predicted one of the city’s main dealers, who declined to be named due to commercial sensitivity. And that would only happen because of market manipulation, not realities. The millers would keep the price high, strike money for the next two months, and then start ‘behaving’ (increasing supplies) in October so they could ask for favors on the price of the cane and, more importantly. , decide when the grinding season should start. This excess sugar would remain in the supply chain and continue to test the finances and resolve of the millers, according to the dealer.

Commenting on the sweets law, a member of the Pakistan Sugar Millers Association, who declined to be nominated due to an ongoing litigation, said the government should have realized it was not starting the season at the beginning of November only at the cost of the recovery and the rise in prices. The method of collecting contributions was finalized during the rationing period when the government bought the entire stock, immediately paid the millers, who would then instantly pay the farmers’ contributions. In this situation, the 15 day cycle made sense. But its implementation in the current circumstances makes little sense as the collection of contributions in the market takes months. But the government did and the association would continue to fight, he concludes.

Posted in Dawn, July 12, 2021

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