Sugar stocks in focus; Balrampur Chini, Avadh Sugar up over 5%

Since a significant quantity of sugarcane juice and B-molasses will be diverted into ethanol production, a proportionate quantity of sugar production will get reduced, ISMA said

Shares of sugar companies rallied by up to 7 per cent on the BSE on Tuesday after the industry body, ISMA, raised its sugar production estimate to 31.0 million tonnes (MT) from earlier 30.5 MT in the 2020-21 marketing season starting this month. It has also increased its sugar sacrifice estimate from 1.5 MT to 2.0 MT.

Among the individual stocks, Balrampur Chini Mills, Avadh Sugar & Energy and Dhampur Sugar Mills were up 5 per cent to 7 per cent on the BSE. EID Parry and Dwarikesh Sugar Industries were up in the range of 2 per cent to 3 per cent, as compared to 0.3 per cent gain in the S&P BSE Sensex.

As per total sugarcane expected to be available to the sugar industry for making sugar, Indian Sugar Mills Association (ISMA) estimates sugar production of 33.02 million tons of sugar in the season 2020-21.

However, since a significant quantity of sugarcane juice and B-molasses will be diverted into ethanol production, a proportionate quantity of sugar production will get reduced. With higher availability of sugarcane and surplus sugar production, it is estimated that a larger quantity of cane juice / syrup and B-molasses will get diverted to ethanol, ISMA said.

Accordingly, it is estimated that the diversion of cane juice and B-molasses to ethanol will reduce sugar production by 2 million tons in 2020-21 SS, as compared to about 8 lakh tons diverted in 2019-20 SS. However, ISMA will get a better idea of this diversion once the tenders happen and bids are given by millers for ethanol supplies, it said.

Sugar mills are expected to sacrifice sugar for ethanol production through B heavy molasses or sugarcane juice route. Also, 2,000 million litre ethanol capacities have come up in the last two years.

The sugar industry was holding 10.6 MT of inventory as of September 2020. The increase in sugar production estimate is marginal and may not impact inventory to a great extent. The government is also running a sugar export subsidy programme to reduce the excess sugar from the system, ICICI Securities said in a note.