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Steep decline in recovery major challenge for sugar mills this season

Despite an increase in sugar prices, mills fear that the decline in recovery may hit their profit margins and thereby hinder their cane payment capabilities

Dilip Kumar Jha  |  Mumbai 

sugar, sugar production, sugar output
Meanwhile, the government has set a maximum admissible export quantity (MAEQ) of 6 million tonnes for this year

While a marginal increase in sugar price over the last two days revived sentiment across the industry, the sharp decline in recovery continues to pose a challenge for mills this season.

Average realisation for sugar mills has increased by Re 0.5 – 1 to Rs 34-35/kg (M30 in Uttar Pradesh and Rs 31.70/kg S30 in Maharashtra). Government has fixed the minimum selling price (MSP) at Rs 31 per kg. In retail, however, unbranded sugar is sold at Rs 44-46/kg.

Despite an increase in sugar prices, mills fear that the decline in recovery may hit their profit margins and thereby hinder their cane payment capabilities. With the crushing season starting late by about a month this year, mills have so far been able to clear most of dues, especially because of the additional incomes earned from export subsidy and high ethanol prices.

“Most of the large sugar mills have cleared their cane arrears of the last year and also for the current season primarily from incomes earned through sale of ethanol and export subsidy. The decline in sugar recovery, however, continues to pose a challenge for sugar industry this year. Because of delayed start of crushing, profit margins in December quarter would remain muted which may recover in March quarter,” said a senior official with one of India’s largest sugar mills.

Meanwhile, Praful Vithalani, Chairman of All India Sugar Traders Association (AISTA) believes that sugar prices have increased marginally on supportive fundamentals with an 18 per cent decline in sugar production estimates to 27 million tonnes for the crushing season 2019-20 versus 32.7 million tonnes in the previous year.

Meanwhile, data compiled by the National Federation of Co-operative Sugar Factories (NFCSF) showed average sugar recovery for the first three months of the current season (October - December) at 9.94 per cent as compared to 10.33 per cent in the corresponding period last year. The average sugar recovery in Uttar Pradesh declined, albeit marginally, to 10.70 per cent between October and December 2019 as against 10.80 per cent in the same period last year.

In Maharashtra, however, the average sugar recovery has declined sharply to 9.95 per cent so far this year versus 10.40 per cent in the same period last year. plants in Maharashtra faced huge water crisis at the beginning of the monsoon season last year due to a delay in its onset. Later, plants had to face a long spell of flood in the state due to excess rainfall. The ideal requirement for the growth of sugarcane is intermittent rainfall at regular intervals. Warm days and cold nights during the winter season help adequate sucrose (sweetener) formation in cane stems.

“Climatic condition is unfavourable during this winter season for sugarcane. As against massive cold (needed for sucrose or sweetener formation in cane) in Uttar Pradesh, the climate remained somewhat warmer in December and January in Maharashtra and Karnataka. Apart from that, sugar mills have contracted 2.5 million tonnes for exports so far this season which is phenomenal. Considering 4 million tonnes of buffer stock, entire 6 million tonnes of export quota looks achievable and lower production estimates, we believe fundamentals are supportive for sugar prices,” said Prakash Naiknavare, Managing Director, National Federation of Co-operative Sugar Factories (NFCSF).

Meanwhile, the government has set a maximum admissible export quantity (MAEQ) of 6 million tonnes for this year, apart from allowing distilleries to operate with additional quantity of cane for producing ethanol in addition to C and D heavy molasses.

NFCSF estimates India’s sugar output at 26.3 million tonnes for the current season, a sharp decline from 32.7 million tonnes produced in the previous year. The apex industry body, Indian Sugar Mills Association (ISMA), is set to come out with its revised sugar production forecast for the current season in February. The government of Maharashtra has cut its sugar production forecast to 5.2 million tonnes for the current season from 5.8 million tonnes estimated earlier.

First Published: Wed, January 08 2020. 18:59 IST
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