Sugar mills have to release 4.8 mt by October 31

The quantity works out to 20% more than consumption, price to crash in near term

A7 notification from the Centre last week directed mills not to hold more than 37 per cent of their annual production as inventories by the end of this month, to go down to 24 per cent by end-October. Industry sources estimate 4.8-4.9 mt would be released in the market by October 31, nearly one mt of additional quantity.

“Of 532 operational mills, 432 hold between five and 10 per cent of stock as of July 31. The remaining 100 mills (mostly in Maharashtra) hold sugar up to 50 per cent of their annual output. These 100 will have to dispose their excess inventory immediately to avoid penal action,” said a senior industry official.

By the notification, the overall quantity with mills across the country should not be more than 7.3-7.4 mt as of September 30, which could decline to 4.52 mt by October 31. Stocks would be calculated on the basis of total opening stock as on October 1, 2015, plus output for the 2015-16 season (October–September), minus exports during the year.

“Mills in Uttar Pradesh are surrounded with sugar consumer state and demand remains always high for mills in UP. In contrast, mills in Maharashtra are covered by producer states — Gujarat, Andhra Pradesh, Karnataka, Tamil Nadu. Realisation for mills in UP is Rs 2 a kg higher than in Maharashtra. Despite Maharashtra being the number-one producing state, consumption is much less. So, the yardstick of treatment should differ,” argued Sanjiv Babar, managing director, Maharashtra State Federation of Co-operative Sugar Factories.

Most mills pledge their inventory to raise funds, of up to 85 per cent. Considering 12 per cent interest, 97 per cent of the cost of sugar inventory is raised. Thus, mills are operating at three per cent of margin income.

“Therefore, the notification to release extra quantity is suicidal for mills in Maharashtra. We have taken up this issue with the state government, to immediately seek withdrawal of the central notification.

The market does not have absorption capacity and the extra quantity would be dumped at a throwaway price. The next crushing season is only a month away,” said Babar.

Sugar prices, meanwhile, have jumped by 40.7 per cent over the past one year; it is Rs 3,772 a quintal for the M-30 variety at the Navi Mumbai wholesale market.

And, as Maharashtra estimates 40 per cent less production for the coming season, sugar contracts for delivery in March 2017 have risne by three per cent on the National Commodity and Derivatives Exchange.