Sugar price hits 6-yr low as supply floods market

Mills rush to sell in open market to clear cane payment arrears, with govt pressure adding to the process

Sugar prices hit a six-year low at the spot market here on Tuesday, following sustained dumping from mills to increase cash flow for clearing sugarcane payment arrears to growers.

Intensified pressure from the government through regular notices has added to the pressure on the mills.

The M-30 variety at the Agricultural Produce Market Committee yard in Vashi, Navi Mumbai, slumped to Rs 2,431 a quintal, a decline of 16 per cent so far this calendar year and 23 per cent since October, when the season began. The S-30 variety was sold at Rs 2,331.5 a qtl, with similar declines from their respective comparable periods. Since October 2014, when the crushing season began, ex-factory sugar prices have fallen by at least 20 per cent. These levels were prevalent earlier in June 2009.

“The market sentiment indicates a lot of surplus in the country, with production to remain on the higher side next season. Apart from that, the global market is not going to help India to push out surplus sugar. So, surplus sugar will remain and, therefore, put pressure on prices,” said Abinash Verma, Director General, Indian Sugar Mills Association.

As against an average cost of production at Rs 3,100 a qtl across the country (Rs 3,300 in Uttar Pradesh and Rs 2,900 in Maharashtra), average ex-factory realisation works out toRs 2,250 a qtl.

Total sugar production is estimated at 28.3 mt this crushing season (October 2014-September 2015) and consumption at 22.5–23 mt. With bumper sowing of cane this year, sugar output is also estimated to remain high in the 2015-16 crushing season.

“Prices in India are expected to remain weak due to surplus stock in both domestic and global markets. Therefore, the government’s intervention is necessary to revive the industry, reeling under the twin impacts of high cane prices and low sales realisation on sugar, leading to recurring losses by sugar mills and mounting cane arrears. Concrete measures are required, including emphasis on increasing its ethanol blending programme, along with providing flexibility for use of cane as feedstock for ethanol production, building compulsory buffer stocks, incentivising export through higher subsidy, restructuring the debt of sugar manufacturers, and, most important, implementation of the recommendation of the Rangarajan committee for linking the price of cane to actual realisation from sugar and its allied products,” says a recent report from CARE Ratings.

This is the fourth consecutive year with surplus sugar stock in India, of around four months of consumption. Also, mills are rushing supply to wholesale markets to clear their cane arrears. Since the June 30 deadline of clearing at least 50 per cent of cane arrears approaches to get eligibility for interest-free loans, mills are cutting their ssale prices every day.

“Banks' valuation of sugar stocks comes to Rs 1,990 a qtl. Considering a 20 per cent margin, banks’ actual assessment of stocks stands at Rs 1,400-1,500 a qtl. So, sugar mills are suffering from all corners,” said Sanjiv Babar, managing director of the Maharashtra State Federation of Co-operative Sugar Factories. He said the ex-factory realisation was at a seven–year low.