Sugar Stocks Outperform Market Amid Crisis: Dwarikesh, Balrampur Chini Surge Up to 8.5%

Indian Sugar Stocks Surge as Crude Oil Prices Soar

On March 4, shares of several Indian sugar companies bucked the broader market decline, surging between 6% and 10% as rising global crude oil prices lifted sentiment for the sector. Key gainers included:

• Dhampur Sugar Mills: 7.5%
• Dalmia Bharat Sugar: 7.7%
• Dwarikesh Sugar Industries: 8.5%
• Bajaj Hindusthan Sugar: 6.8%
• Uttam Sugar Mills: 6.2%
• Praj Industries: 6%
• Shree Renuka Sugars: 4.8%
• Balrampur Chini Mills: 3.5%

The rally in sugar stocks was largely triggered by a sharp spike in crude oil prices following the escalation of the US-Iran conflict in the Middle East. Brent crude, the global benchmark, surged over 25% to $119.50 per barrel on March 9, while West Texas Intermediate (WTI) crude, the US benchmark, briefly climbed to $119.48 per barrel.

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The conflict threatens energy production and shipping routes in the Middle East, a region that plays a crucial role in global oil supply. The Strait of Hormuz, one of the world's most critical oil transit routes, sees 15 million barrels of crude oil pass through daily, accounting for 20% of global oil supply.

The surge in oil prices is affecting Asian economies heavily reliant on energy imports from the Middle East, with fuel costs rising sharply. This trend was last seen in 2022, following the outbreak of the Russia-Ukraine war.

Rising crude oil prices tend to make ethanol production more economically attractive, encouraging producers to divert sugarcane toward biofuel instead of sugar. This benefits sugar companies as higher global prices improve profitability for the sector. When oil becomes expensive, blending ethanol with petrol becomes more economical for fuel suppliers, leading to increased demand for sugarcane and benefiting sugar mills.

The Indian government's ethanol blending programme requires oil marketing companies to mix a certain percentage of ethanol with petrol before selling it in the market. This policy supports farmers and the agricultural economy, increasing demand for crops such as sugarcane and maize, and creating an additional revenue stream for sugar mills and boosting farm incomes.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline