Indian Producer Flags Higher Sugar Prices as Drought Cuts Output

  • Production to drop for a second year on water shortage
  • Sugar prices in Mumbai rallied 40 percent in past six months

Balrampur Chini Mills Ltd., the second-biggest Indian sugar producer, expects sweetener prices to extend a rally as production heads for a second year of decline. Shares of sugar mills climbed in Mumbai.

Production in India will drop 5 percent to 7 percent in the year beginning Oct. 1 from about 25.5 million tons in 2015-16, the company said in an exchange filing. “Considering the demand-supply scenario, the trend is expected to be firm for sugar prices for 2016-17,” Balrampur said.

Futures rallied to a 17-month high in New York last week as analysts, including those at Green Pool Commodity Specialists and Platts’ Kingsman unit, said the global shortage will be bigger than previously thought. El Nino-induced droughts have parched crops in India, Thailand and China, Asia’s three biggest sugar producers. A smaller harvest in India may reduce exports next season and help draw down inventories.

World production of raw sugar may fall to 171.1 million tons in the 2015-16 season, researcher F.O. Licht said in a report. It cut its estimate by 5.2 million tons from December, based on national marketing year figures. Output may slide by 13.3 million tons from last season, the biggest drop in seven years.

The potential for a smaller harvest has sent refined sugar prices in Mumbai 40 percent higher since the end of September. Indian mills may export as much as 2 million tons in 2015-16, Balrampur Chini said.

Sugar production in Maharashtra, India’s top producer, may drop to 6 million tons to 6.5 million tons in 2016-17, from 8.3 million tons a year earlier as dry weather cut planting, the Maharashtra State Cooperative Sugar Factories Federation Ltd. said on Tuesday.

Shares of Balrampur Chini jumped as much as 9.1 percent to 109.50 rupees, the most since March 8, Bajaj Hindusthan Sugar Ltd. surged as much as 8.8 percent to 20.45 rupees, the highest since Jan. 13 and Shree Renuka Sugars Ltd. advanced as much as 6.5 percent to a one-week high of 14.80 rupees.

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