Sugar faces supply pressure

Kolkata: As many as 100 sugar mills are in operation as on April 30, 2019. And these mills together have produced 32.11 million tonne of sugar between October 2018 and April this year, that is, in the first eight months of the ongoing marketing year. It is not a tall order, therefore, to touch a new record of 33 million tonne, as expected by the Indian Sugar Mills Association (Isma). India’s sugar output in the last marketing year (October-September 2018) was also a record of the sort at 32.5 million tonne. Rating and research agency Icra also expects domestic production for sugar year 2019 (SY2019) to be around 32 million tonne, higher by around 4.5-5.0 mt than the estimated consumption.

“Even after assuming 3-4 million MT of net sugar exports in SY2019 on the back of the increase in the production subsidy, the closing stocks still would continue to remain high around 13-13.5 million MT. The supply pressures continue to put pressure on the sugar prices, which are hovering closer to MSP of Rs 31,000/MT,” said Sabyasachi Majumdar, Senior Vice President & Group Head–Corporate Ratings, Icra.

Majumdar added, “The supply pressures had resulted in weakening sugar prices and delays in cane payments. Both the central and various state governments have taken measures to support the industry and cane farmers. However, these measures could not completely alleviate the cane arrears problem, which continue to remain high. For instance, for UP alone, Icra estimates the cane arrears at around Rs 10,000 crore. The increase in the monthly quota in May 2019, which is likely to continue in June 2019, is however likely to support the mills in clearing the cane dues to an extent.”

The Centre has recently increased the monthly sugar sales quota by 17 per cent month-on-month to 2.1 million tonne in May.

But the pace of sugar production in the last 15-20 days has slowed down, with a large number of sugar mills shutting their crushing operations faster compared to the the last season.

Isma indicated that sugar output in the 2019-20 marketing year is likely to decline on lower sugarcane output, thanks to lack of rains in key growing state Maharashtra and diversion to ethanol production.