As raw sugar futures jumped 3 per cent on Monday to 21.55 cents a British pound, traders expect further increases in sugar prices in the coming days, until a clear picture emerges about the magnitude of the shortfall in the Indian sugar crop and production.
"There is a major run and some wild swings in international sugar prices because of the Indian sugar situation, which is going to deteriorate in the coming days," said a Geneva-based commodity trader.
"Unless there is clarity on the magnitude of the fall in sugar production in India, international prices are going to rise sharply in the coming days and week," the trader said.
"There should also be further clarity on how the government intends to handle the situation," the trader told Business Standard, arguing that the market is watching how the government is going to draw down from the current stocks with sugar mills.
Besides, the volatility in prices will largely depend on how the government plans to go about its purchases in the international market, Business Standard was told. Estimates prepared by trading firms in Geneva suggest that sugar production in India would fall by about 50 per cent this year.
When India, which is the largest sugar consumer, enters the market, there is bound to be considerable volatility in prices, analysts said, suggesting that the situation is akin to what India had experienced in early 90s when the previous Congress government was unable to carefully handle the situation.
So far, the government has contracted to import about 3 million tons of raw sugar during the last six months. The imported raw sugar, which is going to be processed by domestic mills immediately, is expected to be released after October.
Last week, the government brought down the customs duty on raw sugar to zero without any export obligation for eight months, which will last till March 31, 2010, analysts said, arguing that major sugar producers like Brazil and Australia are going to benefit from the current turmoil in the Indian sugar market.