Sugar price hits 7-year high on higher demand from stockists

Industry estimates India's sugar production to be 23.5 million tonnes this year

Sugar price hit the highest in seven years following sudden pick up in lifting from bulk consumers and lower production estimates this season.

Steadily approaching towards Rs 40 per kg in the wholesale Vashi market, the benchmark Sugar M 30 variety closed on Tuesday at Rs 39.35 per kg. The sweetener has jumped by over 3 per cent in the last 10-days.

"Ex-mill sugar prices which dropped by Rs 2 to 3 per kilo since the second week of November 2016 after demonetisation have started improving and are now at the levels seen a couple of years ago," said a senior industry official.

Post demonetisation, lifting of sugar from bulk consumers — ice cream and soft drink makers — slowed down resulting in a sharp decline in sugar prices.

Recently however, trade sources say there has been a sudden surge in offtake by bulk consumers that has pushed prices up.

"With higher cane price announced by states such as Uttar Pradesh, Punjab and Haryana, low sugar recovery being achieved in the Tamil Nadu, Andhra Pradesh and other states, and lower capacity utilisation in drought-affected areas of Maharashtra, Karnataka and Telangana, the all-India average cost of production of sugar during the current 2016-17 SS, will roughly be higher at around Rs 35 to 36 per kilo (Rs 2 more than the previous year’s cost of production)," said Abinash Verma, Director General, Indian Sugar Mills Association (ISMA) in a recent report.

With lower offtake and sugar consumption in 2016-17, sugar stocks at the end of the current season may higher than what was estimated earlier, by 0.5-1.0 million tonnes.

ISMA will carry out its second advance estimate for sugar production in 2016-17, later this month, based on satellite images.

"Sugar mills should be allowed to recover at least their costs during the current season, otherwise, they would not be in a position to make payments to farmers on time and would also not be in a position to repay the loans taken from Government of India including those taken under SEFASU and soft loans, which are due to be repaid this year," said Verma.

Meanwhile, traders estimate sugar price to surpass Rs 40 per kg in a couple of days in the wholesale markets and increase to Rs 44-46 per kg in retail.

Industry estimates India's sugar production at 23.5 million tonnes this year compared with 25.1 million tonnes last year.

Sugar consumption in 2016-17 SS, earlier estimated to grow at two per cent over last year, to 25.5 million tonnes, will be much lower. The offtake may thus be lower to even last year’s consumption of 24.8 million tonnes last year.

Sabyasachi Majumdar, Head, Corporate Ratings, ICRA, said, "Sustained healthy realisations and healthy recovery rates are likely to result in healthy contribution margins for UP-based mills, despite a Rs 25/qtl increase in the cane price for SY2017. With the FRP of cane for SY2017 fixed at the same level as of the previous year and sugar prices on the higher side, the profitability of mills based in Maharashtra and Karnataka is likely to improve, however, the extent of increase in absolute levels of profits could be moderated with the decline in the cane availability."

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