Molasses price falls 45% in north

Uttar Pradesh sugar mills seek to sell molasses to south Indian states as they face supply glut

Faced with over two million tonnes of surplus molasses, sugar mills in Uttar Pradesh are looking at non-traditional markets for remunerative disposal.
 

With farmers adopted a high-yielding variety for sowing this season, sugarcane output in UP is estimated to increase by 15-20 per cent this year from last year, to around 210 million tonnes; last year’s was 182.5 mt. Molasses availability this year is forecast to remain at 4.6 mt, with local consumption at 2.5-2.6 mt.

So, mills in UP are looking at non-traditional but high demand markets of Andhra Pradesh and Tamil Nadu for selling molasses; distilleries there need raw material to produce potable alcohol. These southern states have been facing a cane deficit for years, due to uneven distribution of monsoon rain.

“We are looking to penetrate the South Indian markets for our molasses. Sugarcane output in these states is estimated to remain low during the 2017-18 crushing season, a fourth year in a row, resulting in lower molasses availability. Since demand for potable liquor, a derivative of molasses, is very high in these states, we will soon approach the (UP) government to allow us the sale of molasses to distilleries out there,” said an industry official.

Currently, sugar mills in UP are not allowed to sell current season molasses to distilleries outside the state, under a binding agreement with one of India’s largest liquor companies. Under this, the mills have to supply a fifth of their molasses under a ‘levy quota’ at a subsidised Rs 400 a tonne. The remaining 80 per cent also needs to be sold within the state, at the market price. The price is currently Rs 145 a quintal, from Rs 225 a qtl a month before.
 

“There has been very good demand for molasses from South India. There would be a glut in UP if sale is not allowed to distilleries outside the state,” said Vijay S Banka, finance head at Dwarikesh Sugar Industries.

 

Trade sources say per capita consumption of liquor in Andhra is the highest in India. Molasses is a major source of countrymade liquor. Its price in the north has declined by 45 per cent to Rs 2,500 a tonne, from Rs 4,500 a tonne at the beginning of the cane crushing season, three weeks earlier. In the south, the price continues to remain at Rs 4,200-4,500 a tonne.

“The state government had granted permission to sugar mills for selling last season’s molasses to distilleries outside the state. There should not be any problem for such permission this year as well,” said Abinash Verma, director-general, Indian Sugar Mills Association.

During the earlier crushing season, a number of mills in UP had failed to meet their levy obligation and the government denied permission for sale of their residual quantity in free markets. Start of new-season crushing has added to the carryover stock of molasses. Signed for two years in 2016, recall of the agreement by either the UP government or the liquor company would cost around Rs 750 crore as damages to the other side.
 

Industry estimates UP mills would contribute 10 mt of sugar this season, to the overall India production estimate of 25.1 mt.