Rationality of Investing in Brewerie (Liquor) companies, when the sugar prices drops:

One of the main raw material for the Liquor companies is Molasses, which is a by-product of Sugar Industries.We all know that sugar prices world-wide has come under severe pressure due to fall in the oil prices, Brazil is expected to have a bumper c rop etc. Analysts predict a huge downslide of sugar prices for the next 6 to 8 months starting from this month. Following this the sugar companies are expected to come under more severe profit crunch in the coming quarters which will be boon for Liquor making companies, like Tilaknar Industries which depends most of the time on price of Molasses. Industry experts maintain that following a decline in global sugar prices companies have lost export opportunitites, which continued to hit their bottomlines. Since the prices of sugar has crashed to more than $300 per tone in the International markets, the profits on exports will be severly affected even if the government allows sugar exports post October, 2006. With large sugar crop expected this season around 300 million tonnes, total production of sugar fo the year is expecte to be around 22—25 million tonnes. Thus there will be huge surplus of sugar in the country leading to a further fall in price. Besides, elections in UP will also adversely affect the sugar companies. Domestic prices of sugar are expected to drop to 1, 700 per tonne. Hence, there can no other opportunity than to invest in Brewerie companies, when the sugar prices are expected to come down so low so soon. More in the following mails..... Best wishes, Suman Mukherjee India.