Sugar price hits three-year low on supply glut

Isma estimates the total output this season till December 15 at 4.23 mt against 2.9 mt last year; number of operational mills has risen this year

In December, sugar prices dropped five per cent to a three-year low, owing to a sudden spurt in arrivals from mills. Average ex-factory prices in Maharashtra declined to Rs 2,480 a quintal from Rs 2,612 a quintal in November, according to data from the Indian Sugar Mills Association (Isma).

In October, prices stood at Rs 2,683 a quintal.

In Uttar Pradesh, the average ex-mill price fell to Rs 2,750 a quintal from Rs 2,800 a quintal in November and Rs 2,964 in October. The current ex-factory price is the lowest since October 2011.

At the Vashi spot wholesale market, the price of the M30 variety dropped to a 10-month low of Rs 2,916 a quintal, a level last seen in March.

“Sugar prices have been falling Rs 10-40 a quintal on a daily basis. The current price, Rs 500-700 a quintal, is below the cost of production. Mills are facing challenges in paying the fair and remunerative price of Rs 220 a quintal of sugarcane, linked to 9.5 per cent sugar recovery,” said Abinash Verma, director general, Isma.

Overall carryover stocks this crushing season are estimated at 7.5 million tonnes (mt). This season’s output, likely to be about 50 per cent higher (according to an estimate by Isma), is expected to worsen the supply situation.

Isma has estimated the total output this season at 4.23 mt (till December 15), compared with 2.9 mt a year earlier.

This year, the number of operational mills has seen a sharp rise. As of now, the number stands at 442, compared with 426 in the year-ago period. A fortnight ago, 344 sugar mills were operational.

As ex-mill sugar prices are lower than last year’s and cane prices are higher, many in the sector fear accumulation of cane arrears. As of March, these arrears exceeded Rs 12,500 crore (for the last sugar season).

“Mills are losing around Rs 7 a kg, as the cost of production stood at Rs 32.5 a kg,” said Deepak Guptara, secretary, Uttar Pradesh Sugar Mills Association.

Globally, sugar prices have fallen below 15 cents/lb, making exports unviable. The sugar sector in India, therefore, was demanding various export incentives be continued next year, too, Isma said.

In February, the government had announced incentives for sugar production and exports. Though this was for two sugar seasons, the scheme was to be reviewed before the beginning of this sugar season. A review of the scheme hasn’t been carried out yet.