Oversupply to keep sugar prices under pressure: Icra

The oversupply scenario in sugar continues to put pressure on prices, which touched a low of Rs 27,500 per tonne in mid-May 2018, a report said.

With the global sugar prices being subdued, the government's announcement of 2 million tonne of sugar exports under the Minimum Indicative Export Quota (MIEQ) scheme in March 2018 is yet to commence fully and production for SY2018 is set to cross 31 million tonne, the price continues to be under pressure, Icra said in a report.

The sugar prices (ex-mill net of excise in UP) had peaked at around Rs 37 per kg around September-October 2017, after which it had shown a downward trend.

"Domestic sugar production for SY2018 is set to cross 31 million tonne from 20.3 million tonne in the previous year. This has been driven principally by a recovery in production in Maharashtra, North Karnataka and Uttar Pradesh (UP). We expect domestic sugar consumption to increase to around 25 million tonne in SY2018 from 24.5 million tonne in SY2017," Sabyasachi Majumdar, Senior Vice President and Group Head, Icra Ratings said.

As per Icra estimate, even after meeting the target of exporting 2 million tonne, the domestic market would still have around 2.53 million tonne of excess sugar stocks than the normative stock for the next season, he said.

"Hence, while the sugar prices are likely to improve with the successful implementation of MIEQ, any significant increase from the current levels can be ruled out, given the continued oversupply scenario in the domestic market," he added.

In March, the Food and Consumer affairs (FCA) Ministry allowed exports of 2 million tonne under the Minimum Indicative Export Quota (MIEQ) scheme during SY2018.

Under this scheme the export quota has been fixed, taking into account the average production of mills achieved in the last two years and up to February of this marketing year.

Subsequently in May, the government has notified a cane production subsidy of Rs 55 per tonne, which would be paid directly to farmers as part of the cane costs.

"However, the exports are yet to pick up due to low global sugar prices. The sugar surplus in the domestic market has resulted in a significant decline in the sugar prices and has curtailed the mills' ability to clear the cane payments and the cane arrears crossed Rs 20,000 crore during the current season," Majumdar said.