Higher-than-anticipated exports and lower production for the SY2020 (sugar year 2019-2020) season are likely to support domestic sugar prices. On expectations of a global deficit, sugar prices have risen from $313/MT in August 2019 to $388/MT in January 2020. This is likely to support the exports for SY2020, stated an Icra note.
The average sugar prices remained range-bound between Rs 32,000 and Rs 33,000/MT during November 2019 – February 2020. In the near term, the prices are likely to be supported by lower sugar production and higher exports for SY2020. The recent increase in global prices of the commodity would support the exports in the near term.
Domestic sugar production estimates for SY2020 at 26 million tonne is lower by 21% y-o-y. This is primarily due to the decline in cane availability in Maharashtra and Karnataka because of the drought and heavy rainfall and subsequent water logging during the current sugar year (August – September 2019). Icra expects the domestic consumption to increase by around 2% to 26.5 million tonne in SY2020. Considering that the exports are likely to be around 4 million tonne, the closing stocks still would continue to remain high at around 10 million tonne.
Sabyasachi Majumdar, senior vice-president & group head, Icra Ratings, said: “The sugar prices remained range-bound at Rs 33,000-Rs 34,000/MT in August-October 2019. While there has been some decline in prices with the fresh supply hitting the markets owing to onset of cane crushing for SY2020, the prices remained range bound Rs 32,000-Rs 33,000/MT during November 2019 – February 2020. These prices are likely to be supported in the near term by the lower sugar production and increase in the sugar exports in SY2020.”
“The expectations of global deficit for 2019/2020 pushed the prices to $354/MT in December 2019 and then to $388/MT in January 2020 from $313/MT in August 2019. This is likely to result in increase in the sugar exports for SY2020. The exports in the current season have been at 1.6 million tonne as of January 2020, and are expected to be around 4 million tonne for the entire season, higher by around 25% on a y-o-y basis,” he added.
In case of exports, given the prevailing international prices, the companies are likely to incur losses. However, these are likely to be largely offset by the Rs 10.44/kg of export subsidy. Further, the mills would also save on the interest and storage costs to the extent of sugar exported. The government support in the form of subsidies for exports is likely to support the liquidity of mills in the near term, he said further.