Indian sugar mills association

Expect global sugar prices to go up in 2019-20 season: Abinash Verma, ISMA

Date:	13 Jun 2019

Source:	The Economic Times

Reporter:	ET Now

News ID:	40318

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After two years of surplus sugar in the international market, we expect a deficit of anywhere around 2-4 million tons in the next season on the international front and therefore the prices should move up from the current levels globally, says Abinash Verma, DG, ISMA, in an interview with ETNOW.

What are the pricing and demand dynamics prevalent in the sugar industry -- both domestic as well as international?

Let me first tell you about the international market; the last couple of years, the international market gave us a surplus. There was a glut in the international market. The season which is closing now, which is on till 30th of September 2019, also showed a surplus of about 4-4.5 million tons in the international market.

Next year, that is 2019-20 sugar season starting on 1st October 2019, will see a deficit, believe all the experts. After two years of surplus sugar in the international market, we expect a deficit of anywhere around 2-4 million tons in the next season on the international front and therefore the prices should move up from the current levels globally.

As for the domestic market, India has continuously produced 32-33 million tons in the last two seasons, including the current one -- 32 and 33 million tons each. The demand has been around 25.5 to 26 million tons in each of these years and therefore the inventory balance in the current season from about 10.7 million tons as on 1st October 2018, is expected to go up to about 14.5 million tons by the end of this season.

We will be staring at the next season with a very high opening stocks of about 14.5 million tons. However, there are drought like scenario in Maharashtra and north Karnataka, especially in some of the sugarcane producing belts in those regions and therefore next season we expect sugar production to drop from 33 million tons in the current season to 28-29 million tons or 30 million tons. We will do our estimation on 1st of July 2019.

Given that Maharashtra is the second largest producer of sugar and it has been hit with a drought, for May, sugar production is at a three-year low, the drop of a good 40%. Is the worst not really behind us and we are yet to see the worst or would you say a large part of the damage is already done?

I firmly and very strongly believe that we have seen the worst in the current season. I have reasons to say that; number one, from about 10.7 million tons of opening stocks in the current season, we will be starting the next season with about 14.5 million tons. But the cane commissioner of Maharashtra is talking about a drop of almost 4 million tons in the next season from Maharashtra alone.

If we add some drop from Karnataka, we are looking at about 5 million or around those numbers. These are not ISMA’s numbers but the market situation suggests that from about 33 million tons, we will drop to about 28-29 or 27 million tons.

That will allow the sugar mills to reduce their stocks quite substantially in the next season. As I mentioned, the international scenario gives us a chance to export sugar because there is an expected deficit of around 4 million tons in the next season which gives an opportunity to India to export into the international market.

In India, we are trying to target and export almost 7 million tons in the next season and therefore if the production in the next season is more or less similar to consumption, next year we expect the opening stocks of 14.5 million tons to drop to about 8 million tons by the end of the next season.

Therefore, stock balance, inventory balance which is blocking almost about Rs 45,000 crore today will come down to about 8 million tons which will block our working capital to around Rs 20,000 crore. I feel the situation will be much better in the next season.

We have already seen, Uttar Pradesh mill sugar stocks sitting close to their 52-week highs, if not an all time high. That may be still a little far away. Would you say there is scope to buy into these names because the best may come in only a year later I am getting you right there?

Let me tell you two things about Uttar Pradesh and North India. Uttar Pradesh has invested very heavily and continues to invest very heavily in ethanol production capacity. So there is a very strong chance that a lot of b-heavy molasses and sugarcane juice may get diverted into ethanol in the next season.

Therefore even if the sugarcane availability is similar in the next season as compared to the current one, there will be a drop in the sugar production next season. But as you correctly mentioned, UP has not seen this kind of carry forward of sugar inventory ever in the history. So, they are challenged on that part and they have storage problems. They are storing some of the sugar in temporary godowns but if next year, they would be able to a) convert some of the surplus sugarcane juice into ethanol; and b)export and be a part of the seven million tonne of export programme next season. We will ensure that UP will reduce their sugar stocks in the next season.

Bangladesh is a neighbouring country and they generally import almost 2.5 million tonnes of raw sugar every year. If we are able to find the route through the river route into Bangladesh which we are exploring and we have got Bangladesh government on board if that river route develops, Uttar Pradesh will be able to export a large quantity into Bangladesh through the river route next season.

You are saying that the prospects for Uttar Pradesh sugar mills are looking good for the next one year right?
Yes, that is right.

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