At the all-India level, average sugarcane cost as a percentage of sugar
prices is expected to reach nearly 100% in the current season from 86%
in the last. Despite significant inventory levels at the beginning of
the
MUMBAI (Commodity Online): India government’s
decision to give a subsidy of Rs 3.33 per kg on exports of 4 million
tonnes (mt) of raw sugar over the next 2 years will reverse the trend of
falling domestic sugar prices and provide some respite to the
manufacturers, CRISIL Research estimates.
An expected 1.5 mt decline in sugar production in the current sugar
season (October-September) due to lower cane output is also likely to
support sugar prices.
CRISIL Research expects ex-mill (Maharashtra) sugar prices to increase from Rs 26 or so currently to Rs 29 per kg by the end of the season – a jump of over 10%.
The growing disparity between sugarcane and sugar prices has severely affected domestic sugar mills in the last couple of years. As many as 29 sugar companies, together accounting for a quarter of domestic production, had posted net losses of Rs 18 billion for the 2012-13 sugar season, mainly because of high sugarcane prices and high interest costs.
CRISIL Research expects ex-mill (Maharashtra) sugar prices to increase from Rs 26 or so currently to Rs 29 per kg by the end of the season – a jump of over 10%.
The growing disparity between sugarcane and sugar prices has severely affected domestic sugar mills in the last couple of years. As many as 29 sugar companies, together accounting for a quarter of domestic production, had posted net losses of Rs 18 billion for the 2012-13 sugar season, mainly because of high sugarcane prices and high interest costs.
These losses are expected to worsen in the current season as domestic
prices have declined a further 16% in the first 4 months of the current
season and are currently at a 27-month low.
At the all-India level, average sugarcane cost as a percentage of
sugar prices is expected to reach nearly 100% in the current season from
86% in the last. Despite significant inventory levels at the beginning
of the 2013-14 season, the players were unable to export since the
export realisations were Rs 2.00-2.50 per kg lower than domestic prices
due to weak international prices.
Says Rahul Prithiani, Director – Industry Research, CRISIL
Research,"With the export subsidy, nearly 1.5 mt of sugar is expected to
be exported in the 2013-14 sugar season. This, coupled with a 1.5 mt
year-on-year fall in domestic production due to a likely decrease in
cane output will result in a decline in inventory levels. This, in turn,
will lead to a Rs 2-3 per kg increase in sugar prices by September
2014. Hence, the loss for sugar companies is expected to halve from
current levels of around Rs 6 per kg on domestic sugar sales by the end
of this season. But even with this increase, average prices for the
current season will still be 5-10% lower than the last due to weak
prices in October-January."
Happily for manufacturers, the upward momentum in prices is expected
to sustain through the 2014-15 sugar season. Given their continued
losses, CRISIL believes the cash flows of sugar mills will remain
stressed in the current sugar season. This, coupled with a delay in
disbursement of interest subvention loans due to high leverage of
companies, will result in relatively lower payment to farmers in the
first half of the season.
Says Prasad Koparkar, Senior Director – Industry and Customised
Research, CRISIL Research, "With the rise in arrears, farmers are likely
to shift to other crops, resulting in lower acreage under sugarcane
cultivation, leading to a decline in sugar production and inventory
levels in the 2014-15 sugar season. Consequently, sugar prices are
expected to move higher."
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