Downward revision in the sugar production to support the domestic sugar prices in the near term: ICRA

Domestic sugar production estimates for sugar year SY2020 are revised downwards by 7.8% to 26 million tonnes from the earlier preliminary estimate of 28.2 million tonnes (given by ISMA in July 2019). This along with the expected exports of 3.5 million tonnes (as against the government’s target of 6 million tonnes) in SY2020 is likely to improve the demand-supply situation in the domestic market, thus supporting the sugar prices in the near term.

Mr. Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, said: “We expect the closing sugar stocks for SY2020 at around 10.0-10.5 million tonnes post downward revision of the sugar production estimate as against 12.0-12.5 million tonnes earlier. Hence, the domestic demand-supply situation would relatively be better, supporting the sugar prices in the near term, which are currently hovering around Rs. 33-34/kg. Further, the FRP sugarcane price is fixed at Rs. 275/quintal in SY2020 which is the same as that in previous year. This non-increase in FRP sugarcane price is a saving grace for the sugar industry in the face of the supply-induced pressures.”

The production is likely to be lower by 21% in SY2020, when compared to 32.9 million tonnes in SY2019. While the cane availability in Maharashtra and Karnataka was adversely impacted in SY2020 due to drought last year, heavy rainfall and water logging during the current year (August – September 2019) has further adversely impacted the cane crop in few regions of Maharashtra and North Karnataka.

In Maharashtra and Karnataka, the production is likely to decline by 42% Y-o-Y and 28% Y-o-Y to 6.2 million tonnes and 3.2 million tonnes respectively. The production in Uttar Pradesh is likely to remain healthy in SY2020 at 12.0 million tonnes, largely similar to that of the previous year. ICRA expects sugar consumption to increase to 26.7 million tonnes in SY2020 and the consumption is likely to marginally outstrip production by around 0.7 million tonnes.

Higher ethanol manufacture remains critically dependent upon continuation of existing government support to the industry in the form of price support to ethanol, especially those manufactured from B molasses and sugarcane juice. In this regard, the GoI has continued remunerative prices for the ethanol produced from C-grade molasses, B-grade molasses and sugarcane juice for season 2019-20.

ICRA positively notes that several large sugar mills’ distillery capacities would become operational in SY2020 and SY2021.  “However, the recent increase in the molasses reserved quota for country liquor manufacturers to 18% in SY2020 from 12.5% in the last sugar season in UP is likely to have marginal impact on the profitability of the distillery segment of these sugar mills.”, Mr. Majumdar added.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

Leave a Reply

Your email address will not be published. Required fields are marked *