India suspends new sugar futures

India's commodities market regulator has barred the launch of new sugar futures contracts until the end of 2009, a move that analysts say may hit imports as buyers would not be able to hedge their risks.
The Forward Markets Commission (FMC), which regulates the commodities markets, has also forbidden traders from opening new positions in existing contracts, top FMC officials said on Tuesday. Currently there are six contracts on the National Commodity and Derivatives Exchange, the leading exchange in agricultural commodities, with the last contract expiring on November 20.
"FMC has suspended launch of new sugar contracts till December 31," said Anupam Mishra, a director with the FMC. "Traders cannot take new positions in the existing contracts," he said. The news is the second setback to the commodities market in two days, and comes a day after Farm Minister Sharad Pawar said there were no plans to lift the ban on rice futures.
The government had banned trade in several commodity futures in the last two years as leftist allies of the ruling coalition blamed futures for rising inflation. Traders took comfort from the decision of the FMC to lift the ban on wheat futures this month. Another top official of the regulatory body said FMC acted in light of the market situation and rising prices.
"Considering the demand-supply scenario and inflationary expectations in sugar, we have taken this step," FMC member Rajeev Agarwal told Reuters. India has struggled to tame sugar prices after a sharp fall in output, but analysts say suspending the futures market is not likely to reduce prices.
"There had been talks in the past of suspending futures trade in sugar but we felt the rise in sugar price has been because of shortage in domestic production," said Madan Sabnavis, chief economist of NCDEX. "Overall the market will feel discouraged. Now every time there is a rise in prices, there will be fear of a ban," he said. Analysts say restrictions on futures may hurt importers.
"Sugar millers are importing at higher prices. They were hedging their risk at exchange platform. Now they don't have any instrument to hedge the risk. They may cut imports," said Veeresh Hiremath, analyst at Karvy Comtrade. Spot market prices in the western state of Maharashtra, India's top producer, have risen more than 20 percent to 2,264 rupees ($47.27) per 100 kg in 2009 on lower supplies.
India's sugar output may fall to 14.8 million tonnes in the 2008/09 crop year, sharply lower than 26.5 million tonnes a year earlier, a top trade official said last month. India has allowed imports of raw and white sugar with some restrictions to bridge the gap between rising domestic demand and a fall in supplies due to lower crop.