Domestic sugar consumption will outpace production for the second successive year in SY2017 (sugar season), given the lower production in the major states such as Maharashtra and Karnataka. While this decline will be offset to some extent by increased production from Uttar Pradesh, the overall production is expected to decline by 9% and fall short by 2.5-2.8 million tonne from domestic consumption, which continues to grow at 2-3% per annum.
An opening stock of 7.6 million tonne for SY2017 is likely to result in the overall sugar availability between 30.5-31.0 million tonne, which is expected to meet the domestic demand of around 26 million tonne. However, the closing stocks of around 4.8 million tonne in SY2017, lower than the normative sugar stock level of around 6.4 million tonne (based on the assumption of requirements of three months domestic consumption), would be sufficient to meet the requirement of around two months of domestic consumption, said an Icra analysis released on Tuesday.
Sustained healthy realisations and healthy recovery rates are likely to result in healthy contribution margins for UP-based mills, despite a R25 increase per quintal in the cane price for SY2017. With the FRP of cane for SY2017 fixed at the same level as of the previous year and sugar prices on the higher side, the profitability of mills based in Maharashtra and Karnataka is likely to improve. However, the extent of increase in absolute levels of profits could be moderated with the decline in the cane availability. Sabyasachi Majumdar, head, corporate ratings, ICRA, said: “The expected decline in the sugar production during SY2017, coupled with the decline in the domestic sugar stocks during SY2016 and the impact of the global sugar deficit scenario has firmed up domestic sugar prices to R36,200/tonne in October 2016, although there was a dip in November following the demonetisation and the arrival of the new crop.”