The sharp rise in sugar prices in the past few days is unlikely to benefit mills in Maharashtra, Karnataka and Tamil Nadu, as they are staring at one of the lowest production levels in recent years.

Maharashtra, once known as the sugar bowl of India, is set to record production of 42 lakh tonnes, its least in the last 10 years, due to a drought-like situation in most of the cane growing regions. The State produced 70 lakh tonnes during the last sugar season. The previous low was 46 lakh tonnes, recorded in 2008-09.

Of the 150 mills that started operations in October, 148 have already closed down after producing 41 lakh tonnes of sugar, according to Maharashtra State Commissionerate data.

The remaining two mills, which are preparing to shut down by this month-end, will produce about 50,000 tonnes, said a sugar company official.

The situation in Karnataka is also grim, with production expected to fall to 21.2 lakh tonnes from 36 lakh tonnes recorded last year. Almost all the mills in the State have stopped production. In Tamil Nadu, sugar production is slated to touch 10 lakh tonnes, well below its annual demand of 14 lakh tonnes.

However, Uttar Pradesh remains the bright spot in the current situation and is well poised to take advantage of the rising prices. As of February end, the 107 mills in the State have produced 62.46 lakh tonnes (53.51 lt) of sugar, which is 17 per cent higher than last year.

Domestic sugar prices are likely to remain firm in the next two to three quarters, given the tight stock position in the domestic and global markets. This augurs well in terms of profitability of the UP-based sugar mills, said ICRA Ltd in a statement.

ICRA estimates domestic sugar production to decline by around 19 per cent to 20.3 million tonnes during SY2017 against SY2016, driven by a significant decline in production in key sugar-producing States — Maharashtra and Karnataka — due to poor rainfall during the previous monsoon seasons.

Though sugar demand may fall by 3-4 per cent, it is unlikely to pull prices down prices as the decline in sugar production will more than offset the fall in demand, it added.

UP stands apart

Sabyasachi Majumdar, Senior Vice-President, ICRA, said sustained healthy realisations, higher cane crushing volumes and higher recovery rates are likely to support the profitability for UP-based sugar mills despite an increase in the cane price by ₹25 a quintal.

The profitability of the western and southern-based sugar mills continues to be affected by the crushing volumes, he added.

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