The Hindu Business Line : UP mills reach understanding over cane supplies

Crushing reasons
To benefit from the bull run in sugar.
The sizeable capacity expansion undertaken by sugar cos.
Fear of their cane area being poached.

New Delhi , Aug 20

After driving up cane prices by poaching into each other's area, the sugar majors of Uttar Pradesh are now trying to arrive at an entente to prevent a repeat of the 2005-06 season.

The big mills, it is learnt, have reached an informal understanding not to start crushing operations in the 2006-07 season (October-September) before November. In recent seasons, crushing had commenced in October, as factories were keen to source maximum cane to benefit from the bull run in sugar. But this pre-emptory cane war did not really help the industry. In UP, much of the cane crushed during October-January is the `ratoon' crop, which grows from the stubble of the previously-harvested plant cane. Cold conditions prevailing till January means that the new plant cane ripens for crushing only from February.

Early crushing

"Since mills began crushing in October as against November, the ratoon crop got exhausted by the third week of December. As a result, they got desperate and bid up prices to secure supplies", sources pointed out.

In 2005-06, it was Triveni Engineering & Industries that initially raised its cane price from Rs 115 to Rs 128 per quintal, forcing others to follow suit. In the previous season, the first mover was Mawana Sugars.

The main reason why mills chose to crush early was the sizable capacity expansion undertaken by them and fear of their cane area being poached. Thus, in 2004-05, DCM Shriram Industries' Daurala factory started in October keeping in mind the newly commissioned Kinauni unit of Bajaj Hindusthan Ltd (BHL). Last year, BHL's Thanabhawan and Budhana mills forced Triveni's Khatauli plant to take season early, just as Simbhaoli Sugar Mills did so in response to Mawana Sugars' Nanglamal factory.

All this was fine as long as sugar prices were on a roll. But now, with the price outlook less sanguine and UP headed for the Assembly elections early next year, the mills are apparently revisiting their cane adventurism.

"The informal consensus not to start crushing in advance is the first step. Given the number of new factories coming up in the new season, they cannot afford not to crush. But they will have to manage cane supplies more intelligently", the sources added.

The consolation is that the cane area in UP is estimated to go up from 23 lakh hectares to 26 lakh hectares this season. Besides, yields are also expected to be somewhat higher, which, it is hoped, will help the new mills to run to optimal capacity.

Rising capacity

Between 2004-05 and 2005-06, BHL's aggregate capacity has gone up from 31,000 tonnes crushed per day (tcd) to 56,200 tcd and would touch 1,00,000 tcd in the new season. Balrampur Chini's capacity has correspondingly risen from 29,000 tcd to 47,500 tcd and 54,500 tcd, while being 25,250 tcd, 40,500 tcd and 61,000 tcd for Triveni; 11,000 tcd, 14,000 tcd and 33,000 tcd for DCM Shriram Consolidated; 18,000 tcd, 21,000 tcd and 29,000 tcd for Mawana Sugars; and 11,300 tcd, 16,100 tcd and 20,100 tcd for Simbhaoli Sugar.