Can government restrictions on sugar exports leave a bitter taste in the mouths of investors?

Can government restrictions on sugar exports leave a bitter taste in the mouths of investors? – Mail Bonus

NEW DELHI: The government has taken many measures in recent days to stem the rapid rise in food prices, which has pushed inflation out of the comfort zone. The most recent in a row was restrictions on sugar exports to prevent a rise in local prices.

According to the announcement, the government decided to allow the export of sugar up to 10 million tons. The restriction will apply from 1 June until 31 October. According to reports, the government has told traders to secure a license for foreign sales of sugar from June 1 to October 31.

The announcement, and before the news floods about possible action, has led to a bloodbath in the sugar supply of recent days.

Analysts say sugar prices have skyrocketed in international markets due to the drought in Brazil. The world hoped that India, the second largest exporter, would fill the gap. To a certain extent, the country has taken over and therefore the margin of all sugar export companies in India has also increased. But now the government could play sports, some experts said.

“After the export ban takes effect on June 1, 2022, these companies could face marginal pressure, which is why sugar stocks are declining,” said Naveen Mishra, an analyst at CapitalVia Global Research. He said Triveni Sugar Mills and Dalmia Bharat Sugar would be the worst hit by government action.

However, some experts do not see much effect as they believe that the export expectation for the year has been lower than the government’s limit. Raj Vyas, portfolio manager at Teji Mandi, said that export expectations for the current season were expected to be in the range of 9-9.5 million tonnes.

“This (government action) is seen as a precautionary measure to protect the country’s own food supplies. “So what the government’s statement means is that now sugar mills will have to take permission from the government to export sugar,” said Vyas.

“As in all cases, exports were not expected to exceed 10 million tonnes and the fact that the government is satisfied even with a stock level of 6 million tonnes at the end of September 2022 is positive.

He sees no revenue effect because these are just potential export restrictions and no export bans. Industry leaders have also emphasized the fact that the impact will not be significant. While that could have some effect on global commodity prices, the expert said.

Mohit Nigam, head of PMS, Hem Securities, said that in the midst of a global commodity price volatility, India’s export restrictions could push global prices higher.

“Due to recent market adjustments, following this news, most sugar stocks have fallen by 30 to 40 percent from a 52-week high, but export restrictions will make more surplus sweeteners available for domestic ethanol production, which is the government’s main goal. he said.

Nigam saw another impetus in the government step.

“The sugar sector is undergoing a massive transformation and has emerged as a powerful driving force for clean energy, accelerating India’s transition to renewable energy. Increased transport of cane to ethanol will reduce the problem of excess sugar stocks and minimize business fluctuations, leading to improved profitability, lower working capital and stronger long-term cash flow. “To solve the problem of excess sugar, the government encourages sugar mills to transfer excess sugar cane to ethanol production,” he said.

DRE Reddy, CEO and CEO, CRCL LLP, a company that provides canteen services to corporate offices, said it was too early to say whether this restriction would affect pricing in India.

(Disclaimer: Recommendations, suggestions, opinions and opinions given by experts are their own. This does not represent the views of the Economic Times)

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