The Hindu Business Line : Lower global prices, elections add to sugar mills' woes

The fall in global sugar prices is bad news for the domestic industry on two counts. First, it makes exports less attractive, even in a scenario where the Government lifts the current ban.

Mills were talking about the possibility of shipping out at least 3 million tonnes (mt) of sugar in the ensuing 2006-07 season (October-September).

Downturn

Reduced supplies of subsidised European sugar and diversion of Brazilian cane to ethanol were seen as favourable factors.

Even more helpfully, Indian mills enjoyed freight advantage in supplying to neighbouring deficit markets such as Bangladesh and Sri Lanka.

This avenue is now looking not all that bright now. Lower international prices also place an automatic lid on domestic realisations:

The ability of mills to increase prices locally.

And all these are less than a couple of months before the new season is to begin, with production estimated to cross 23 mt over and above opening stocks of four mt.

Assembly elections

Further, Uttar Pradesh is slated to go for assembly polls in February and this could have implications on cane prices. The State Government had `advised' a price for 2005-06 at Rs 112-117 per quintal. There is talk of the price in the coming season being pegged at Rs 130-137 per quintal.

"The mills, especially in UP, may have no choice but to pay the higher rates. After all, there are political compulsions. Besides, there are so many new mills that have come up and they all require cane if they wish to run," sources pointed out. But this pressure may not be that much for sugar companies in other parts of the country, who have not been as aggressive in adding fresh capacity over the last couple of years.