The staggering 22 per cent decline in sugar prices since January has come as a setback to sugar companies. Sugar mills, that were expecting better profits during the fourth quarter of the current financial year, are now sceptical about their growth prospects.
Ex-factory sugar prices in the domestic market that were hovering around Rs 40 a kg in January, have now slumped to Rs 28 a kg — a dramatic fall of 30 per cent. However, in the retail market they are still around 22 per cent.
In the December quarter, almost all mills reported huge net profits with sugar prices skyrocketing.
Now, sugar mills are barely breaking even. Any further fall from the current stockist price of Rs 31 a kg will result in losses for the mills, says Amol Tilak, an analyst with brokerage firm Kotak Commodities Services.
The government, in an effort to bring down the spiralling sugar prices, had introduced the system of releasing stock on a quarterly basis during the current season.
Now that sugar supplies have surged, following the introduction of weekly-quota release, the Indian Sugar Mills Association (Isma) has urged the government to revert back to the old system of monthly release.
Sugar prices have declined dramatically in the last one-and-a-half months to Rs 3,200 a quintal (M30) from Rs 4,400-4,500 a quintal at the end of January.
Sugarcane prices for farmers, however, have not declined and currently stands at Rs 260-265 a quintal in Uttar Pradesh and Rs 280-290 a quintal in Maharashtra.
As a consequence, mills are finding it difficult to sell sugar at the current market price. The government’s mandated to release 20 per cent of their production at Rs 13 a kg through the public distribution system is hurting them more.
The government decision to put a limit to stockpiling by corporate consumers and zero tax on imported white sugar, has resulted into a glut of sugar supply in the market. The 20 per cent release through PDS, if lifted, can provide some relief to mills, said B J Maheshwari, director of Dwarikesh Sugar Industries.