High production to keep prices under pressure

Sugar supplies from mills have been relentless recently, resulting in swollen ready stocks. But as purchases by bulk consumers, like soft drinks and ice cream makers, have been selective, availability of sugar has been plentiful.

It has brought down sugar prices. Prices in the Delhi wholesale market fell by Rs 65 per quintal on Friday.

According to agency reports, sugar ready M-30 and S-30 prices on Friday drifted lower by Rs 65 each to end at Rs 3,330-3,460 per quintal and Rs 3,320-3,450 per quintal. Mill delivery M-30 and S-30 prices also dipped by Rs 50 each to settle at Rs 3,140-3,280 per quintal and Rs 3,130-3,270 per quintal. In the mill gate section, Khatuli tumbled by Rs 50 to Rs 3,265 per quintal, Kinnoni slipped by Rs 45 to Rs 3,280 per quintal, while Asmoli declined by Rs 40 to Rs 3,245 per quintal. Prices of Simbholi and Dhampur fell by Rs 35 each to Rs 3,270 per quintal and Rs 3,160 per quintal, while Mawana, Budhana, Thanabhavan, Dhanora and Modinagar decreased by Rs 30 each to Rs 3,200, Rs 3,215, Rs 3,205, Rs 3,255 and Rs 3,185 per quintal, respectively.

Analysts are of the view that bumper output this year was the main reason behind the downtrend in prices. India’s sugar production as of February 28, 2018, was 23.05 million tonnes. Considering that 479 sugar mills are still crushing, output for the year is expected to be higher.

Quite significantly, amid the substantially higher sugarcane yields per hectare reported by Maharashtra and north Karnataka, the Indian Sugar Mills Association (Isma) has increased the production estimates for the 2017-18 season to 29.5 million tonnes, 45 per cent higher than last year’s 20.3 million tonnes.


Two key sugar-producing states – UP and Maharashtra– alone are expected to produce over 10 million tonnes this season. According to Isma, the yields recorded in Maharashtra and Karnataka are reportedly one of the highest ever by either of these states.

A recent Icra study said this upward revision in the sugar production estimate, along with the liquidation of sugar stocks, especially by several cash-strapped mills, with limited access to working capital, to meet cane payments, has resulted in a decline in prices during December 2017-February 2018. Prices declined from Rs 37,000-37,500 per million tonne in October 2017 to Rs 34,000 per million tonne in December 2017 and further to Rs 31,500 per million tonne in February 2018 (first week). Prices picked up in the recent weeks following the government initiatives such as the doubling of import duty to 100 per cent and the imposition of limits on sugar sales by mills and prices are currently hovering around Rs 34,500-35,000 per million tonne. But Icra does not rule out renewed pressure on the sugar prices, especially if the final production was to be higher than its current estimates of around 27 million tonnes.

“Based on current trends, domestic sugar production for SY18 is anticipated to increase by 33 per cent to around 27 million tonnes against earlier estimate of 26 million tonnes, although an even higher production cannot be ruled out at this stage. This has been driven principally by a recovery in production in Maharashtra, north Karnataka and UP.


The domestic sugar consumption is expected to increase to around 25 million tonnes in SY2018 from 24.5 million tonnes in SY17. Hence, with the expected increase in production in SY18, it would be higher by 2 million tonnes than the estimated consumption. We expect a closing stock of around 6-6.5 million tonnes in SY18,” said Sabyasachi Majumdar, senior V-P & group head, Icra.

Given that production is likely to outstrip consumption by at least 2 million tonnes, Icra anticipates pressures on sugar prices and profitability. Under these circumstances, the government support remains critical for the industry.


With a much higher production – and surplus thereby, after considering 25 million tonnes of estimated domestic consumption – Isma has proposed export of 1.5 million tonnes of sugar, which in turn, may ensure extra cash flows to mills and help in better payment to farmers and reduction in cane price arrears, which are accumulating to reach uncomfortable levels.

Majumdar of Icra said, “In terms of profitability, mills are likely to report a decline in the operating profitability in FY18 YoY on account of higher cane cost of production (higher SAP and FRP for the current season) along with pressure on sugar realisations during Q4FY18. But mills out of Maharashtra and north Karnataka are likely to reap some benefits arising out of higher production and continued healthy volumes and recovery rates in FY18 could benefit the UP-based mills. Further, most major UP mills have by and large seen significant deleveraging over the last couple of years, which will help them withstand cyclical downturns better.


Ritwik Mukherjee