Sugar companies are likely to face difficult times in the current sugar season, too, though not as bad as the previous one. Global sugar prices continue to fall, with even prospects of a lower-than-expected sugar output in Brazil not providing support. On the Intercontinental Exchange (ICE), white sugar is trading 15% lower than a year ago, while the ICE 11 contract for raw sugar is down by 12.5%, according to the data from Bloomberg. Domestic prices are doing relatively better, down by 2.8% over a year ago. Brazil has seen a drop in its cane crushing output due to drought conditions. Between April and September, cane crushing was up by 2% over a year ago. As of mid-November, this has turned to a decline of 1%. The effect is more visible on sugar, which had seen output surge by 4% till September, due to a higher proportion of cane going to sugar versus ethanol. But as of mid-November, sugar output is down by 3%. But crushing may recover in the rest of the season and sugar supplies are also ample, so prices are staying cool to this development. photo Low international prices have a direct impact on export realizations of sugar mills. Coastal mills are best placed to export, but all mills benefit from a tighter supply situation. That’s one reason why domestic prices are in better shape than global prices. But raw sugar exports were also propped by a government subsidy that was available till September. A decision is yet to be taken on whether to continue it in the new season. Without the subsidy, exports may not be as remunerative, leading to more sugar in the domestic market, therefore, depressing prices. In the current season, the Indian Sugar Mills Association estimates output at 25 million tonnes (mt), compared with last year’s output of 24.4 mt. Higher output should ensure that mills earn revenues from the sale of by-products. Co-generation of power can be counted upon to contribute but the fall in crude oil prices does put a question mark on how much can be earned from selling ethanol. Still, considering that the inflation in procurement price is minimal, profitability of by-product operations should improve. Sugar company shares had run up in early November, particularly after Uttar Pradesh retained last year’s procurement price and agreed to give mills some financial support. Compared with this time last year, sugar mills seem better off, chiefly due to flat trends in cane procurement costs. If output is lower than anticipated, then that could support market prices, too. But often in the past, such periods of peace have been shattered by some policy-related hiccups. And, if international prices continue to decline, they can put pressure on domestic prices, particularly if the raw sugar export subsidy is not continued. That should make investors a tad cautious on the sector.