Maha co-op mills worried as sugar prices fall

Maharashtra sugar mills are facing financial pressure due to a continuing fall in sugar prices, currently in the range of Rs 2,670-2,725 per quintal ex-mill, against Rs 3,250 per quintal in March. Cane is being procured at Rs 2,500 a qtl and the production cost is Rs 2,800 a qtl.

Industry sources told Business Standard: “The current level of ex-mill prices for the first time during the ongoing crushing season have gone below the production cost. If this continues for long, the mills are definitely going to get into serious financial turmoil. The only ray of hope recently has come from a rise in international prices, which would indirectly improve domestic price sentiments.”

Maharashtra, which contributes close to a third of sugar production in India, is expected to produce 6.5 million tonnes against the original projection of 4.8 mt. The crushing season is expected to be over by end-May, later than expected, with the state government having announced that mills would not shut until all the cane crop is crushed

Prakash Naiknavare, managing director of the Federation of Cooperative Sugar Factories in Maharashtra, a representative body of 170 coop mills, noted two positive factors which would help push up prices. One, the Government of India had reduced the quota of sugar which could be released in the market this month to 1.28 million tonnes, compared to 2.1 mt in April 2009. “Added to that is the summer demand, which is expected to push (up) the prices. However, the moot question is push in prices to what level. Any level below Rs 3,250 per qtl would harm the mills’ financials.”

Yogesh Pande, president of the Maharashtra Sugar Brokers and Merchants Association said international sugar prices had shot up to $530 per tonne due to expectations of a delay in Brazil’s harvest and news about China’s imports being higher than expected. He said a small reversal in domestic prices had taken place.