Sugar industry expects to bounce back after price rise, govt measures

Tamil Nadu mills in the red still, seek financial package and loan relief.

The surge in sugar prices follows the central government’s announcements to support the industry weeks before the crushing season few weeks away.

The expected decline in 2019-20 sugar production coupled with the announcement on creation of 4 million tonnes (MT) of sugar buffer stock and subsidy on 6 MT sugar exports resulted in sugar prices rising to Rs 34-34.5/kg (ex-mill Uttar Pradesh), according to a report by rating agency ICRA. Sugarcane is Rs 31.8/32 per kg in Maharashtra against the minimum selling price of Rs 31.

The ICRA raid the government’s measures were likely to result in improvement in liquidity of sugar mills, thus supporting cane payments to farmers as well.

Domestic sugar production is likely to decline to around 28.2 MT compared to 32.9 MT in 2018-19, because of the near-drought in Maharashtra and Karnataka.

“We expect closing sugar stock for 2019-20 at 12-12.5 MT. Despite sugar surplus, the government support measures have resulted in increase in sugar prices," said Sabyasachi Majumdar, ICRA Ratings senior vice president and group head.

The government first announced a financial package for the industry in July and last month followed it up by approving an export subsidy of Rs 10.44 per kg of sugar to enable mills ship 6 MT of the product.

“It is a big relief to sugar industry, since 6 MT would translate into sugar value of Rs 18,000 crore even if we sell at Rs 30 per kg. It reduces the stock and carrying cost accordingly, while mills get vacant storage space for new sugar,” said Abinash Verma, director general of Indian Sugar Mills Association (ISMA).

However, Tamil Nadu mills are in crisis. Only 14 of the 25 private sugar mills in the state are unlikely to operate in 2019-20 season owing to sugarcane shortage and liquidity constraints.

Representatives from South Indian Sugar Mills Association (SISMA) said in Chennai their request is staggered repayment, restructuring of dues and a financial package.