Indian commodity exchanges will start sugar futures from Monday, the regulator said, initially launching six contracts as the country revives exports and the government looks for ways to moderate food price inflation. India had banned trade in sugar futures in May 2009 for six months when prices were rising as it faced shortages. The government extended the ban until the end of September, but then allowed it to lapse.
"We have allowed them (exchanges) to start sugar futures from Monday. We have given them permission to launch six futures contracts from January to June," B.C. Khatua, chairman of the Forward Markets Commission, told Reuters. India, the world's second-biggest producer after Brazil, was a large importer of sugar in the past two years as farmers switched to other more profitable crops and a severe drought hit cane output in 2009.
This year, production is expected to be over 25 million tonnes in the new season that began on October 1, higher than domestic demand of around 23 million tonnes, industry officials have said, after a normal monsoon led to a larger cane crop.
As a result, India has already allowed unrestricted exports of 500,000 tonnes of sugar and the market expects more overseas sales as the country swings back to a surplus. Domestic sugar prices have fallen nearly 28 percent since hitting a record high of 3,972.3 rupees on January 7 but food price inflation remains a concern and the government has just stepped in to rein in onion prices. "It (futures) will help in stabilising domestic sugar prices," Prakash Naiknavare, managing director of the Maharashtra State Co-operative Sugar Factories Federation, said.
In Kolhapur, a key spot market in top-producing Maharashtra state, the most traded S-variety eased by 0.3 percent to 2,874 rupees ($63.6) per 100 kg on Friday. Industry experts said futures would again attract interest from millers as there is a risk of a sharp drop in prices if the government gives permission for lower amounts of exports and local output rises sharply.
"Sugar mills are looking to hedge their risk. Eventually volume should catch up," said Ashwini Bansod, a senior analyst at MF Global Commodities India. Multi-Commodity Exchange, National Commodity and Derivatives Exchange and ACE Commodity Exchange have been given permission to launch sugar futures, Khatua said. "We are going to start sugar futures from Monday.... Volumes are expected to increase over a period of time because market confidence takes time to build," said Dilip Bhatia, chief executive officer, ACE exchange.
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