Relief steps for sugar prices drag these stocks down

Shares of Indian sugar companies saw a sharp decline on Friday following the government's decision to allow duty-free imports of raw sugar until October 31. The move came as sugar prices surged ahead of the festive season, which typically sees a spike in demand for sweets and confectionery. Prior to the government's announcement, sugar stocks had risen sharply over the past two months due to tightening supplies in the world's largest sugar-consuming country.

Companies such as Balrampur Chini Mills, Dhampur Sugar Mills, and Bajaj Hindusthan Sugar all fell by 5% each after hitting new 52-week highs just a day prior. EID Parry India and Shree Renuka Sugars saw declines of over 3%. The government's decision marks India's first sugar imports in nearly a decade. Sugar demand typically increases between August and November, with festive seasons like Ganesh Chaturthi, Dussehra, and Diwali driving consumption.

Manufacturers also stockpile sugar in anticipation of the festive season, further supporting demand. In a bid to ensure adequate supplies, the government has also tightened inventory limits, limiting the period dealers handling more than 10 metric tonnes of sugar per month can hold stocks to 15 days. Earlier this month, the government had directed dealers to limit their sugar stockholding to no more than 30 days.

However, patchy rains and dry weather conditions have impacted sugarcane production in recent months, leading to concerns over supply and upward pressure on prices. Additionally, Brazil, the world's largest sugar producer, faces a worsening supply outlook due to adverse weather conditions, further contributing to sugar price fluctuations.

The situation is exacerbated by a shift towards ethanol production in Brazil, with 58% of cane juice diverted towards ethanol in June, which is expected to yield better profitability than sugar. Brazil has also raised its mandatory ethanol blending target to 32% from 30% in July, a significant increase from the 25-27% levels observed just months earlier.