Sweet year ahead: Sugar sector outlook turns positive for next season

The beleaguered domestic sugar sector, bogged down by mounting sugarcane areas and market glut, is looking at ‘sweeter’ times next season (2019-20) over projected lower sugarcane crop coupled with higher diversion of the crop for ethanol manufacturing.

Besides, the likely higher off-take of sugar in this summer season is also a positive for the sugar industry. Centre has raised sugar sales quota to 2.1 million tonnes (MT) for May and a similar quota is expected for June 2019.

According to Indian Sugar Mills Association (ISMA), water in Maharashtra reservoirs was below normal levels due to lower rainfall in the last monsoon season. This indicates that cane acreage in the state will be ‘significantly’ lower in the coming season. Even at the pan-India level, there is expectation that sugarcane availability will be much lower compared to the current season, which is still ongoing, thereby reducing sugar production.

Besides, with additional green field and brown field ethanol production capacities coming up, the sugar industry would be better placed to divert larger quantities of ‘B’ heavy molasses/sugarcane juice, away from sugar into ethanol. This would further reduce sugar production in 2019-20 and insulate the industry from market glut conditions, which depress sugar prices and result in arrears.

ISMA will obtain satellite images of domestic cane cultivations next month to announce its preliminary estimates of crop availability and sugar production for 2019-20 season. For current season (Oct-18 to sept-19), however, ISMA has projected production at 33 million tons, about 0.5 MT more than last season. The sugar recovery has been higher across India compared to last season. Even though the quantum of cane crushing is lower, sugar production was projected to be higher. Till April end, 32.2 million tons sugar has already been produced in the country.

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The Centre has hiked the monthly sugar sales quota by 17 per cent to 2.1 MT in May 2019 and the same trend is expected in June. According to ratings agency ICRA, the hike coupled with seasonal higher sugar demand in the summer, especially for soft drinks, ice creams etc, would help in reducing domestic cane arrears to an extent, though the magnitude of the current problem is huge.

“Supply pressures had resulted in weakening sugar prices and payment delays. Both the central and state governments have taken measures to support industry and farmers. However, these measures could not alleviate the problem,” said ICRA senior VP & group head (corporate ratings) Sabyasachi Majumdar, adding that UP alone accounted for cane outstanding to the tune of Rs 10,000 crore.

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The increase in the sales quota would support the mills in clearing dues to an extent, even though the supply pressure continues to put pressure on sugar prices, currently hovering at Rs 31,000/tonnes.

“Although sugar prices have fallen, yet the increased sales quota would provide some relief to the sugar mills in clearing the stock and paying off farmers,” a senior official with a leading UP based sugar miller told Business Standard.

The monthly quota of 2.1 MT also includes additional quantity given as incentive to mills for achieving 75 per cent of their export target and for producing ethanol from B-heavy molasses instead of sugar.