Lockdown-hit corn starch makers find silver lining in downstream pharma

Although pharma accounts for 10-15% of corn starch supplies, manufacturers are looking to partly make up for loss in production, as offtake has received some support from the crash in input corn price

The domestic corn starch industry, whose capacity utilisation is down by nearly 50 per cent owing to the covid-19 lockdown, has found a silver lining in the downstream pharmaceutical space, which is among the sectors largely insulated from the pandemic crisis.

Although pharmaceuticals account for 10-15 per cent of corn starch supplies, manufacturers are looking to partly make up for the loss in production, as offtake has received some support from the crash in the input corn prices owing to the bumper crop this season.

Corn starch is used in fast-moving consumer goods (FMCG), juices, pharmaceutical, textile, paper, packaging, and adhesives, among other sectors. While more than 60 per cent of the domestic maize output goes towards poultry and feed segment, 20-25 per cent is set aside as industrial corn starch. 

“There has been a spurt in institutional glucose demand due to the pandemic, while the pharmaceutical sector is also in an upswing. Besides, the sale of cold drinks, beverages and juices in the FMCG basket is gradually picking up pace,” an industry insider told Business Standard on conditions of anonymity.

He said the robust demand for glucose was also on the account of adequate stocking by the hospitals and healthcare institutions for dealing with any eventuality pertaining to covid-19 and the lockdown norms in coming months.

The consumption of corn by Indian corn starch makers has dipped by 50 per cent from 400,000 tonnes to 200,000 tonnes a month now.

“The corn starch industry will be able to resume their normal operations depending upon how fast the user industry comes back to track,” All India Starch Manufacturers Association office bearer Manish Gupta said adding the industry is down by 40-50 per cent owing to subdued market demand.

He said the bulk corn starch user segments of textile and paper were down and unless they operated at near optimum capacity, the corn starch space will continue to be in lower trajectory.

“We have urged the government for giving relief to the industry, including export sops, electricity bill waiver and reduction in the goods and services tax (GST),” he added.

Nonetheless, the corn starch players have seen their corn procurement prices dip in recent months owing to oversupply. A bumper crop coupled with subdued market demand has pulled down maize/corn spot prices by 20-25 per cent vis-à-vis last year.

The commodity is trading in the range of Rs 1,450 to Rs 1,550 per quintal (100 kg), way below the minimum support price (MSP) of Rs 1,760 per quintal fixed by the government. Last year, the prices were ruling upwards of Rs 1,750 and hitting as high as Rs 2,100 per quintal for some time.

The 2019-20 rabi maize production is pegged at 9.8 million tonnes (MT) with Bihar estimated to post record output of 3.75 MT against 2.85 MT last year, thus contributing majorly for the current prices crash. Karnataka, Andhra Pradesh, Tamil Nadu, Rajasthan, Maharashtra, Bihar, Uttar Pradesh, Madhya Pradesh and Gujarat account for 85% of India's maize production.

Sahyadri Starch and Industries managing director Vishal Majithia said although lockdown is gradually easing, yet the exodus of labour from key downstream and labour intensive industries, such as textile, would impede any early resumption of production activities. “Due to these factors, we can expect things to start returning to normal for the corn starch industry sometimes after July or so.”

Last year, the domestic starch and derivative market was projected to grow at more than 5 per cent and touch volumes of 3.5 million tonnes over the next 4-5 years. The growing domestic and international demand for the commodity continues to push up the valuation of the Indian starch manufacturers.

According to Kedia Advisory director Ajay Kedia, the maize prices have slumped over the past few months due to a sharp decline in demand from bulk buyers, especially poultry feed makers. The poultry sector has refrained from buying the crop as retail demand for products such as broilers and eggs has taken a hit following coronavirus, he added.

“Looking at the fundamentals, we see prices to trade between Rs 1,100 and Rs 1,350 in the coming 2-3 weeks. The prices have already seen sharp drop with demand affected by the coronavirus factor. The protein meal markets could be affected by this supply available throughout this year,” he said.

Interestingly, the international corn prices have also crashed by about 30 per cent with the current level hovering at US$320 per bushel compared to $480 per bushel last year owing to bumper arrival in the market and negative demand owing to global shutdown.