Sugar prices are up 25 per cent since August, after estimates of the cane crop being impacted due to less rain and strengthening of international prices, which opens export opportunities. If less output does coincide with more export, this is good news for the industry, struggling with excess stock and heavy debt, with two years of arrears in farmer payments. Market believe a three-year bull cycle could be starting. The Business Standard index of sugar companies has risen 47 per cent from September, indicating the market has begun buying their shares.
The price of sugar is still eight per cent less than a year before; however, at the time, prices were at a peak, while these are now on a rising streak. Crushing has begun in Maharashtra and the south, while mills in Uttar Pradesh should be starting to crush by the end of this month. Export has begun, with global prices up 35 per cent after reports of crop losses in Brazil, the world's biggest producer, and in Indonesia.
Abinash Verma, director-general, Indian Sugar Mills Association, says, “The improved global prices do mean the opportunity to export from India is better. But, even at these improved prices, there is a loss of Rs 4,500-6,500 a tonne. “Even so, export makes sense due to the huge carry-forward stock from the earlier season. Which is where less of output is a help; with export, this would help keep domestic prices high. “Mills would recover export losses if domestic prices improve by Rs 1.5 a kg (Rs 1,500 a tonne),” said Verma. The likelihood is of 3.5-4 mt of export in the next 11 months.
Ethanol, a byproduct, contributes to about 12 per cent of mills' revenue. The recent excise duty removal on that would mean Rs 500 crore more revenue to the industry, at five per cent blending with petrol for the government's programme in this regard. This season, 3.5 per cent blending is likely. Deven Choksey, chief executive of KRC Shares & Securities, said: “The sugar cycle is turning positive and is expected to last for three years. Southern companies are better bets than northern mills as the crushing season there is longer and promoters are conservative about the balance sheet, which helps them to sustain in bad times. Also, the price of cane is linked with products to a higher degree in the south. In the north, especially in UP, cane prices are decided politically, not in favour of the industry.”