Sugar stocks Bajaj Hindusthan Sugar, Balrampur Chini, others rally up to 8% after govt tightens stock limits

Sugar stocks experienced a significant surge of up to 8% on Thursday following the government's tightening of inventory limits. Dealers handling more than 10 metric tonnes of sugar per month were prohibited from holding stocks for over 15 days. Bajaj Hindusthan Sugar shares jumped around 8% to Rs 22, while Shree Renuka Sugars and Dhampur Sugar Mills increased by 6-7%. Balrampur Chini Mills saw a rise of over 3%, and EID Parry India advanced nearly 2%.

The government's decision comes as India's sugar demand typically rises between August and November during festive seasons like Ganesh Chaturthi, Dussehra, and Diwali, fueling the need for sweets, biscuits, and other confectionery products. Manufacturers also stockpile sugar ahead of the festive period, contributing to heightened demand.

Last month, the government mandated dealers to hold sugar stocks for a maximum of 30 days to ensure adequate supplies. Despite this measure, sugar prices have risen by 10% over the past month to record highs, with analysts predicting prices will remain elevated for at least the next three months. Patchy rains and dry weather conditions have adversely impacted sugarcane production, further tightening the supply outlook.

Brazil, the world's largest sugar producer, has also contributed to the surge in sugar prices due to its worsening supply situation. The country has warned of a delayed harvest due to adverse weather conditions. Moreover, Brazil has suspended its bi-weekly harvest and production reports, making it difficult to gauge the country's supply outlook accurately.

A shift towards ethanol production is adding to concerns over a potential sugar supply crunch. In June, 58% of Brazil's cane juice was diverted towards ethanol, which is expected to yield better profitability than sugar. Additionally, Brazil has raised its mandatory ethanol blending target to 32% in July from 30% in June, a significant increase from the previous 25-27% levels.

India, the world's second-largest sugar producer, is contemplating reducing its import duty on the commodity to curb domestic prices that have recently soared to record levels, according to Bloomberg reports. Officials are considering lowering or eliminating the 100% tax on inbound shipments to boost local supplies, especially before the seasonal surge in sugar demand for the festival season.