Sugar Drops by Limit in India as Government Plans Stock Curbs

By Thomas Kutty Abraham

Feb. 24 (Bloomberg) -- Sugar prices in India, the world’s second-biggest producer, declined by the daily limit after the government said it will limit the quantity traders can hold to cool prices ahead of general elections.

The stockpile limits and curbs on the amount traders can sell will be enforced for four months, Home Minister Palaniappan Chidambaram said yesterday. The rule will be notified today.

Retail prices of sugar in capital New Delhi have gained 23 percent in the October-January period as production falls for a second year. The jump comes as Prime Minister Manmohan Singh’s government prepares for elections that need to be held by May. Inflation can mar poll prospects in a country where more than half the people survive on less than $2 a day.

“Government intervention will continue to arrest any significant rise in prices,” Sangeetha Saranathan, an analyst at India Infoline Ltd., said. “Sugar is an essential commodity and an increase in prices won’t be a positive with elections round the corner.”

The curbs on stockpiling sugar mirror those on cooking oil, oilseeds, rice and paddy.

March-delivery sugar on the National Derivatives & Commodity Exchange Ltd. in Mumbai slipped 4 percent to 2,101 rupees per 100 kilograms. Futures were at 2,124 rupees at 12:55 p.m. local time.

Sugar production in the year ending Sept. 30 may total 16 million tons compared with 26.4 million tons last year, Vivek Saraogi, managing director of Balrampur Chini Mills Ltd., the nation’s second-biggest producer, said Feb 3.

India last week allowed duty-free imports of raw sugar to fill the shortfall. Importers can buy sugar at zero duty until Sept. 30 only if they export a matching quantity in two years.

‘Knee-Jerk Reaction’

Shares of Balrampur Chini fell as much as 9 percent to 48.2 rupees in Mumbai, the lowest since Jan. 23. Bajaj Hindusthan Ltd., the biggest mill, dropped as much as 9.3 percent to 45.2 rupees, while Shree Renuka Sugars Ltd. dropped 7.5 percent to 76.3 rupees.

The sell-off may be a “knee-jerk reaction” as the drop in output is “supportive” for sugar mills, said Saranathan.

“The gain in global sugar price index on the back of India import plans signal that prices will remain firm.”

Prices of raw sugar have risen 10 percent this year in New York on forecasts of India importing the sweetener for the first time in three years.

Futures for May delivery fell 0.6 percent to 12.99 cents a pound yesterday on ICE Futures U.S. in New York. Prices reached 13.64 cents on Feb. 10, the highest since Oct. 2.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net