HYDERABAD: Sugar mills in the Western and Southern regions of India are witnessing strains on profits due to significant decline in the cane crushing volumes, while their Northern counterparts, mainly in Uttar Pradesh, are seeing good profitability due to good production, says rating agency ICRABSE 1.71 %.
According to associations and rating agencies, the domestic sugar production is set to decline by around 19% to 20.3 million tons during SY (sugar year) 2017 compared to SY2016, driven mostly by a significant decline in sugar production in key sugar-producing states – Maharashtra and Karnataka due to poor rainfall during previous monsoon seasons. During SY2017, domestic sugar consumption is expected to decline by 4% to around 24 million tons when compared to SY2016.
Sabyasachi Majumdar, senior vice-president and group head of ICRA Ratings, said, “Sustained healthy realisations, higher cane crushing volumes and higher recovery rates for SY2017 season are likely to support the profitability for UP-based sugar mills despite an increase in the cane price by Rs 25/quintal.”
He added that the profitability of the Western and Southern-based sugar mills continues to be affected by the crushing volumes. While the fair and remunerative price (FRP) of cane for SY2017 fixed at the same level as of the previous year and the sugar prices are on the higher side, the profit levels for Western and Southern-based sugar mills are likely to be low on account of the significant decline in cane crushing volumes.
Domestic sugar prices are likely to remain firm in the next two to three quarters given the tight stock position in the domestic and global markets, the agency said.
While the sugar prices declined marginally during November – December 2016 following demonetisation, sugar prices have recovered to around Rs 37,000/ a ton in January – March 2017 due to the tight sugar stock situation.
Although ICRA anticipates a 3-4% decline in domestic sugar consumption during SY2017, this is unlikely to affect sugar prices, at least during SY2017, as the impact of the decline in the domestic sugar consumption is likely to be more than offset by a higher-than-expected decline in sugar production.
“Despite a significant decline in the domestic sugar production, ICRA projects the closing sugar stocks at 4-4.5 million tons at the end of SY2017 season, which would be sufficient to meet the requirement of around two months of domestic consumption. While this is lower than the normative stock requirement of three months, the levels of sugar stocks would largely limit dependence on imports during SY2017,” said Majumdar.