Starch makers wilt from both ends

High maize prices, low demand to hit margins.

With the price of maize, its prime raw material, trading at a high of Rs 13,000 a tonne, the starch industry is having a hard time, with poor demand from its major consumer, the now-ailing textile industry.

Other by-products such as glucose are also selling at prices lower than before and margins are under pressure.

The situation is not expected to improve for quite some time. Maize prices have risen by 10.3 per cent in the past two months from the beginning of the sowing season, as acreage were expected to shift to cotton, which has happened. Last year was very good for the maize crop, which was 21.2 million tonnes (mt). This year, maize prices are 10 per cent higher, since farmers are sowing less —the estimate is 5.93 million hectares as against 6.39 mha last year at the same time. This is because many farmers opted for sowing cotton, while in the sowing areas of Gujarat-Saurashtra and parts of Andhra, rainfall has been deficit. The crop is estimated at 15.5 mt this kharif, compared to last season's 17 mt.

Experts say if rain does not catch up in a week in the sowing areas, farmers will have to sow shorter-cycle crops such as sorghum (jowar), trading around Rs 15,500 a tonne. Maize prices are Rs 12,700-13,200 in various mandis. (They were Rs 6,000 a tonne in 2005 at this time).

Strong international prices might also keep maize export demand buoyant. The latest release from the United State Grain Council says Indian maize exports would scale a record high to three mt, almost three times more than last year, in the current marketing season ending August 31.

Starch prices have come down from Rs 24 a kg four months before to a little below Rs 20 at present. Textile makers are running on lower capacities for the past three months due to a glut in cotton yarn stocks. This has affected starch demand and companies have started selling this stiffening material at below production cost. A starch manufacturer said some companies are already facing a glut.

“As we cannot pass the hike in raw material prices down to consumers due to weak demand, this will definitely start to eat into the margins of starch companies,” said Ganpatraj L Chowdhary, managing director, Riddhi-Siddhi Gluco Biols.