Sugar mills to start crushing on time, output to rise

By Mayank Bhardwaj

NEW DELHI (Reuters) - Sugar mills in India's main cane-producing state are likely to start crushing on time next month, even though a dispute over cane prices is unresolved, and the world's biggest consumer is poised to produce a surplus for the fifth straight year.

A timely start to the crushing season could depress local prices by increasing supplies and may force mills to seal export deals at lower price.

Mills in the biggest cane-producing state of Uttar Pradesh had threatened to suspend operations, citing their inability to pay state-government-mandated cane prices to farmers.

"The cane commissioner of UP (Uttar Pradesh) has told us that the mills have assured the state government that they will start their operations on time," Food Secretary Sudhir Kumar said after a meeting of officials from sugar-producing states.

Industry officials now believe the state government of Uttar Pradesh may raise the 2014/15 cane price only marginally. It is likely to announce the cane price after Nov. 10.

The state government had told mills to pay 280 rupees ($4.57) per 100 kg for cane in the 2013/14 marketing year that ended in September, compared with the 210 rupees recommended by the central government.

Mills paid that but, anticipating yet another price rise in the current year, made the threat to halt operations.

The state-mandated cane price has climbed 65 percent in five years, while sugar prices have fallen by 2 percent.

State-run banks have declined to offer fresh working capital to mills as some have defaulted on bank loans due to low sugar prices.

SUPPLY GLUT

The country's sugar output is expected to rise 4 percent to 25.5 million tonnes in the 2014/15 season that started on Oct. 1, higher than local consumption of around 23 million tonnes, a government official said, declining to be identified because he is not authorised to speak to media.

In the new season, Maharashtra is likely to produce 9.1 million tonnes of sugar, while Uttar Pradesh could churn out 6.2 million tonnes, the official said.

The surplus production could force the government to give incentives for exports as prices are not attractive in the world market, a Mumbai-based dealer said.

Although a delay in announcing incentives for the 2014/15 season had led to doubts about the intentions of the new administration, two government sources told Reuters this week that it would consider the matter after the output forecast was released.

In February, the government gave a subsidy of 3,300 rupees ($53.82) a tonne for production and exports of up to 4 million tonnes of raw sugar to help mills cut their large stockpiles.

($1 dollar = 61.3100 rupees)

(Writing by Rajendra Jadhav; Editing by Alan Raybould)