The Hindu Business Line : Low prices hit sugar cos’ margins in Q1

Chennai, Aug. 5 Sugar companies across the board have either slipped into the red or find their profits slashed in the first quarter of 2007-08, an indicator of what is in store for the current year.

Low sugar prices, poor realisation in the domestic and international markets and forecast of a high production during the 2007-08 season on the back of a glut in the current season mean that there is no immediate relief in sight.

Companies’ performance in terms of capacity utilisation and output has been comparable with that of last year but their margins have been eroded because of low prices, which are not expected to recover in the near future.

They attribute the reason to ban on exports in 2006 when domestic stocks were expected to reach record levels even as prices in the international markets were attractive.

Abundant stocks

Production in the 2006-07 season is estimated at about 27.5 million tonnes, which, along with an opening stock of 39.02 lakh tonnes, took the availability to 31.4 mt against a consumption of about 19.5 mt. Estimates indicate that the coming year is also likely to be bountiful – not good news for an industry that finds product prices hitting a low.

Industry sources point out that sugar prices are at Rs 12,500 a tonne while the variable prices of sugarcane are in excess of Rs 14,000. Between the first quarter of the current year and that of the corresponding quarter last year, sugar prices have dropped to Rs 12.50 a kg from Rs 20. Companies are not even recovering the cost of sugarcane.

Mr N. Ramanathan, Director (Finance), Ponni Sugars (Erode) Ltd, said that most sugar companies’ topline continues at the levels in 2006 when they had reported profits. Adding to the woes, he said, the Centre is yet to implement its export subsidy support of Rs 1,350-1,450 a tonne. Also, the 50-lakh tonne buffer stock is yet to be created; notification and claim procedures have not been announced, he said.

Dr Palani G. Periasamy, Chairman, Dharani Sugars and Chemicals Ltd, said that the export ban has hit the fundamental health of the industry. After banning exports at a time when international markets were ruling around $435 a tonne, the country is pushing for subsidy-driven exports when prices are less than $265. There has been no specific support for companies that have export commitments under the advance-licensing scheme.

The industry has no option but to look for support to bring down stock levels to bolster prices, he said.