Domestic sugar production is expected to decline 11 per cent to around 25.2 million tonnes in sugar year 2016 (SY) beginning October 1, while prices are likely to remain steady in the near term, rating agency ICRA said.

Lower production, along with exports of around 1.6 million tonnes (MT), is likely to bring down the closing stocks to around 7.6 MT in SY16 from around 9.5 MT in SY15, it added.

Sugar output is likely to drop 11 per cent to 25.2 MT in SY16 over the previous year and will slip further next year, it said.

While it is too early to estimate the sugar production for SY17, based on the cane plantation and monsoon levels, ICRA said it expects production to drop further between 4-8 per cent to 23-24 MT.

The stock correction has resulted in an improvement in sugar prices which have seen a rising trend since August 2015.

This trend was driven by a host of factors, including a government notification on mandatory exports in September 2015, followed by announcement of cane production subsidy in December 2015, market anticipation of supply correction driven by drought conditions in certain key growing regions and impact of global sugar deficit scenario, the agency said.

Thus, prices climbed to close to Rs 34,000 per tonne levels by May 2016, almost 50 per cent high over July 2015 lows, it said.

“Given the supply correction, which has happened in SY16, and given the expectations of further production drop, we anticipate prices to remain steady in the near term.

“In the next 2-3 quarters, any further increase from current levels would depend on factors like expectations for sugar production during SY17 and sugar mills’ own actions on supplies depending upon their inventory holding capacity,” ICRA Senior Vice-President Sabyasachi Majumdar said.

ICRA expects the supply correction during sugar year 2015-6 to benefit domestic players.

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