Sugar production estimate further cut to 26 mt

ISMA may cut production forecast at 26 mn tonnes in Second Advanced Estimates from 28.3 mn tonnes last year

Sugar prices are likely to remain firm this year on estimates of lower output following deficient rainfall in major producing centres like Maharashtra.

While industry body Indian Sugar Mills Association (Isma) had in October 2015  lowered its production forecast for 2015-16 to 27 million tonnes (mt) from 28.3 mt in the year before, it today further lowered its estimate to 26 mt.

Sugar prices hit their lowest in several years at Rs 19 a kg ex-factory in August 2015 on mills’ aggressive sales to clear cane arrears to farmers. Since then, however, sugar prices have rebounded to trade currently at Rs 24-25 a kg ex-factory and Rs 30 a kg in wholesale markets.

“The sentiment has improved in the last few months after three years of depressed sugar prices when mills incurred massive losses. The improvement is mostly because sugar production is expected to be lower than the last year,” said Isma in a statement.

The average cost of production is between Rs 33 and Rs 35 for a kg of sugar. Sugar mills are, therefore, still unable to cover their costs. If prices do not improve there will be additional cane arrears and defaults in repayment of loans. Cane arrears of the previous season stand at Rs 2,500 crore.

“Fundamentals are very supportive for sugar to remain firm this year. But the huge inventory and slow exports might restrict sugar prices. Still we feel sugar will touch Rs 34-36 a kg this year,” said Rohit Pawar, vice-president, Western India Sugar Mills Association.

The government has allowed 3.2 mt of sugar exports for the current year. According to Isma, sugar mills have already contracted for 0.7-0.8 mt for exports.

Sanjiv Babar, managing director of the  Maharashtra State Federation of Co-operative Sugar Factories (Sugar Federation), estimates cane output in Maharashtra will decline by 10-15 per cent this year on crop damage due to deficient rainfall during the last monsoon season.