Sugar prices have recovered to around Rs 33,500 per tonne (ex-mill Uttar Pradesh) due to various government measures including creation of buffer stock and fixing minimum selling price (MSP), according to a report.
Domestic sugar prices have recovered to around Rs 33,500 per tonne (ex-mill UP) from a low of Rs 26,500 per tonne in May, Icra said in a report.
It said, recent government measures such as creation of 3 million tonne buffer stock and fixing of MSP for sugar at Rs 29,000 per tonne, has helped the sugar industry.
However, the ICRA report said, the sustainability of the same is uncertain with the likelihood of another year of bumper production in sugar year (SY) 2018-19.
Further, the hike in FRP is likely to result in margin pressures and provide further impetus to farmers to sow sugarcane, which is likely to make the oversupply conditions even worse, it added.
"Significant increase in the sugar output by around 60 per cent year-on-year in SY2018 is likely to result in closing stocks between 99.5 million tonne even after considering the successful implementation of the 2 million tonne exports," Icra senior vice president and group head Sabyasachi Majumdar said.
"While 0.4 million tonne of sugar is under the process of getting exported, it might pose a challenge, given the subdued global sugar prices," he added.
In addition, he said, to the existing surplus sugar in the market, production in the coming season is expected to increase by 10 per cent to around 35 million tonne.
"Hence, while the prices have recovered after the announcement of the government bailout package for the industry, we expect pressure on the sugar prices given the continued oversupply scenario," he added.
After the government measures following with the recovery in the sugar prices, the cane arrears declined to around Rs 17,800 crore as on July 18.
But with higher FRP and a higher sugar production in SY2019, the cane arrears are expected to further increase, Icra added.
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