Import tax unlikely to support sugar prices for long.

An import tax is likely to halt a free fall in sugar prices, but unlikely to bolster them, as ample supplies meet likely subdued demand, dealers said.

Indian sugar millers are expecting import tax of 40% to halt cheaper imports, while the government said it will take a call after assessing the domestic crop prospects.

"Duty will bring some relief. Prices may rise a bit reacting to the decision, but they are unlikely to rise significantly or sustain at higher levels. Demand is not supporting upside," said Ashwini Bansod, a senior analyst at MF Global Commodities India.

In top sugar producer Maharashtra, the price of the most traded S-variety sugar has fallen 40% since a January 7 record high of Rs 3,972.3 per 100 kg.

"Millers signed import deals when production estimates were low. But actual output has turned out much higher than initial estimates, and the imports have already landed," said Ashok Jain, president of the Bombay Sugar Merchants Association (BSMA).

Last year India permitted duty-free sugar imports and set limits on stocks as output fell and prices soared.

Industry body The Indian Sugar Mills Association (ISMA) estimated availability of 5.5 million tonne imported sugar in 2009-10.

The world's biggest consumer is likely to produce 18.7 million tonne in the 2009-10 season ending September, significantly higher than initial estimate of 14-15 million.

Industry and government officials expect production to top 24 million tonne in the sugar year beginning in October, higher than the domestic demand of about 23 million tonne.


Source : Money Control.com