The sugar output has been considerably higher. So have been supplies from the mills. Ironically, however, sugar demand, particularly from the bulk consumers, was quite low. This slackened demand from bulk consumers has put pressure on prices. Little wonder then that sugar prices fell by Rs 80 per quintal at the wholesale market in Delhi on Monday.
In the last week sugar prices in Maharashtra had fallen to Rs 29.40 per kg at mill gate, the lowest since March, 2016. Interestingly, a drop in prices coincided with millers complaining of sluggish offtake. So much so, a section of millers had expressed their inability to pay farmers as per the 70:30 revenue sharing formula and had challenged the decision in the court.
While some analysts attributed the drop in sugar prices to adequate stocks positions coupled with slackened demand from bulk consumers, there are some other who are of the view that sugar prices are falling everywhere as mills are under pressure to clear the cane payment bills.
Millers are now resorting to panic selling as they are under stress to make cane payments. Dealing another blow, banks have reduced valuation of sugar, thereby making lesser amount of advance available for cane payment. Thus, the mills that had pledged their sugar with the banks are faced with short margins now. A look at the Delhi wholesale market would reveal how these factors have impacted the sugar pricing. Sugar ready M-30 and S-30 prices were down by Rs 80 each to end the day at Rs 3,300-3,480 and Rs 3,290-3,470 per quintal.
Similarly, mill delivery M-30 and S-30 prices slipped by Rs 70 each to conclude at Rs 3,120-3,275 and Rs 3,110-3,265 per quintal. In the mill gate section, sugar Shamli dipped by Rs 60 to Rs 3,145, while Kinnoni, Dorala, Budhana and Thanabhavan lost by Rs 45 each to Rs 3,275, Rs 3,180, Rs 3,185 and Rs 3,180 per quintal, respectively.
There is wide spread fear psychosis among traders and other stakeholders in the sector. The sector does not see any reversal of the downward trend unless the government takes some appropriate measures. And unless the Centre initiates some measures, making cane payments would be even more difficult.
If ex-factory prices of sugar fall further, mills will not be in a position to make payment to cane growers. In fact in Maharashtra, mills will be unable to pay Rs 200-300 per quintal over and above the Fair and Remunerative Price (FRP) as agreed earlier, said National Federation of Cooperative Sugar Factories (NFCSF) president Dilip Walse Patil, in an official communiqué.
Meanwhile, as per estimates, India is likely to produce 26.1 million tonne of sugar in the 2017/18 marketing season that started on October 1, up nearly 4 per cent from the previous estimate. This is because a good monsoon pushed up cane yields. India had produced 20.30 million MT of sugar in sugar season (SS) 2016-17 and the carry over stock from year 2015-16 stands at 7 million MT. According to Centre’s earlier projections, India is supposed to produce 25 MMT of sugar in 2017-18 (October 1, 2017 –September 30, 2018) which is 23.6 per cent higher than the sugar produced in the previous sugar season (October 1, 2016 –September 30, 2017). As per Indian Sugar Mills’ Association (ISMA), sugar production as of mid-December 2017 in the current sugar season has gone up 29.8 per cent to 69.40 lakh tonne, while the number of mills has increased to 469 from 449.
Going by the latest study by Crisil Research, high prices in sugar season (SS) 2016-17 and higher production in SS 2017-18 is of little cheer to mills because the differential between sugar prices and cost of cane continues to narrow. Cane costs are set to rise by 11 per cent while sugar prices moderate marginally in SS 2017-18. As a result, Crisil Research expects Ebidta (earnings before interest, depreciation, tax and amortisation) margins to drop 200-250 bps in SS 2017-18, despite buoyant production. Interestingly, raw material accounts for over 70 per cent of the cost for sugar mills, and impacts margins the most. The more the gap between sugar prices and cane cost, the better is the margin for mills.
The Centre is n the process of taking appropriate steps to curb sugar imports and facilitate surplus exports in order to check falling wholesale prices of sweetener and ensure timely payment to cane farmers. Significantly, according to Indian Sugar Mills Association (ISMA), the country’s consumption is likely to be about 25 million tonnes, giving millers the scope to export surplus. India imported sugar in 2017 after production fell to 20.3 million tonne in the 2016/17 marketing year.
Indonesia, the world's second-largest sugar importer, is already exploring the possibility of buying raw sugar from India, where a bumper cane crop has raised fears of a glut, much to the pleasure and relief of the sugar industry and the government.