Indian sugar mills association

Sugar mills in a fix over drop in prices

Date:	21 Dec 2011

Source:	The Business Line

Reporter:	M.R. Subramani

News ID:	785

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Chennai, Dec. 20: A near 10 per cent drop in sugar prices since the beginning of this month has left mills in a quandary. The situation is particularly grim with regard to mills in Uttar Pradesh, according to sources in central Uttar Pradesh.

“Sugar prices in Uttar Pradesh have dropped to Rs 2,900 and below for a quintal. At the same time, production costs, including higher cane price, have increased by Rs 500 a quintal. Last year, during the same period we were getting Rs 3,000. Even at that price we would have made loss,” said a miller from the northern State.

For the current season that began in October, Uttar Pradesh has increased the State Advised Price for sugarcane to Rs 2,500 a quintal, up Rs 400 over last year.

“If Uttar Pradesh is going to produce 60 lakh tonnes of sugar as projected, then the industry in the State will end with Rs 300 crore loss,” the miller, who did not wish to be identified, said.

Besides higher price for cane, mills have to incur additional conversion costs such as diesel, petrol, labour and bags, including jute, for packaging. “The higher conversion cost could come to around Rs 70 a quintal,” he said.

Things are a little better in Maharashtra, the other major sugar producing State. “Maharashtra mills could be making a loss between 50 paise and Re 1 a kg against Rs 5 a kg in Uttar Pradesh,” said an industry source from Mumbai.

“Uttar Pradesh mills are suffering because of politics dictating policies. This is because the State is heading for elections soon,” the source said. “Also, recovery of sugar from the cane in the northern State is lower at 8.5-9 per cent against 10 per cent in Maharashtra,” the source said.

Open market sale quota

Sugar prices have dropped over Rs 300 since the beginning of the month and the industry attributes this to higher open market sale quota declared by the Government for this month at 17 lakh tonnes (lt). This is apart from the 2-lt to be distributed through ration shops. Every month, the Centre decides on the quantity of sugar to be sold in the open market and through rations shops. The industry has been asking the Government to end this practice in vain.

“The problem is not sale quota but mills in Karnataka, Andhra Pradesh and Punjab going to courts to supply more sugar in the market. Some 1-1.5 lakh tonnes come to the market through court orders and these suppress the market,” the industry source said, adding that such sugar is sold at a discount of Re 1 a kg.

Bids in the futures market to close or cut open positions are also seen as dampener on sugar prices, according to trade sources.

On December 13 and 14, prices dropped by Rs 200 a quintal in the futures market, affecting the spot market, they said.

The decision by the Centre to allow 10 lt sugar exports was taken late, said the UP miller. But the industry source said the decision has been taken well before February when a clear picture on the production front will be available.

“Sugar production is estimated between 240 lt and 260 lt (243 lt last year). It will be clear only by February,” the industry source said.

According to the miller, sugar prices ruled in the global market around $670 in October. Had the Centre taken a decision then, it would have earned them a premium of Rs 8 a kg. “Now, we can look to a premium of Rs 2 a kg only,” the miller said, pointing to the gains that have been lost. On Tuesday, refined or white sugar was quoted at $607.

The outlook on the price front is not bright in view of higher production this year.

“If current situation prevails, cane payment to farmers will be affected,” said the miller.

Currently, mills avail loans from banks that provide 85 per cent of the sugar price as advances. “We are paying what we get as loans to farmers for the cane. This means they are not paid fully,” the miller said.

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