Sugar refineries cut capacity in wake of high supply, sliding price

Domestic sugar refineries are operating at markedly less capacity than is usual for this time of the year, owing to excess supply.

High output this year and substantial carryover stock from last year have hit domestic prices. “Raw sugar of domestic origin is currently $60 a tonne cheaper than imported ones. Hence, it makes sense to stockpile raw sugar now for converting into refined sugar during the lean season. Our refineries are, therefore, operating at 50 per cent of installed capacity,” said Narendra Murkumbi, managing director of Shree Renuka Sugars and ex-president of the Indian Sugar Mills Association (Isma).

During the crushing season, refineries generally operate at 70-75 per cent of their capacity. Generally, they build their stock of raw sugar during the six-month crushing season beginning October-November, to process during the rest of the year. The stockpile is built through local buying and import.

The landed cost of raw sugar at Indian ports is $580 a tonne against the domestic origin product price of $520 a tonne. Smaller refineries are producing refined sugar by procuring raw sugar from domestic mills.

Sugar output has risen 17 per cent to 7.6 million tonnes in the current season up to December 31, as compared to 6.5 mt around the same time last year. The major increase has come from Maharashtra, Uttar Pradesh and Karnataka, the three largest producers. The rise in UP is of 500,000 tonnes, in Maharashtra of 300,000 tonnes and in Karnataka of 200,000 tonnes, shows Isma data. The number of sugar factories crushing as on December 31 was 503 in comparison to 490 on the same date last year.

“For converting raw into white sugar, the price has to be competitive. Hence, it makes sense to hold stocks at the current domestic price, today at the lowest in the world. Once the price stabilises or starts improving, refineries would enhance operating capacity,” an expert said.

A recent report from Angel Broking estimated a 16.4 per cent increase in carryover stock at 6.06 mt in the beginning of the 2011-12 season as compared to 5.2 mt in the previous season. With an estimated total production during the current season at 26 mt, overall supply is estimated to be 32 mt during the current season, as against 22.5 mt of consumption.