The high level of inventory coupled with lack of export opportunity due to low global prices may exert pressure on sugar companies’ profitability this fiscal, according to a report by Care Ratings.

With the opening stock of 9.2 million tonnes (mt), the industry is expected to produce 24 mt of sugar this fiscal. The total availability would touch 33 mt against the total demand of 25.9 mt, including domestic consumption of 24.4 mt and export of 1.5 mt.

The inventory at the end of this fiscal would touch 7.5 mt, against 9.2 mt in the same period last year, according to the report on the sugar industry.

Despite the Government easing its control on the industry, the declining sugar price and increase in State Advised Prices impacted the profitability of sugar companies. The industry was partially decontrolled in April last year by lifting the obligation on sugar companies, to sell the sweetener at a lower price to Government for sale under the public distribution system. The Government also discontinued the process of fixing monthly sale quota for sugar companies.

Sugar prices softened in the last few months after cash-strapped sugar companies rushed to offload their inventory with the Government scrapping the monthly release mechanism. However, prices have started moving northward from February, primarily on account of lower than expected production estimates for the sugar season 2013-14 and the export subsidy.

The Government has extended a lifeline for the industry by providing an export subsidy of ₹3.30 a kg in February. The subsidy will be given for export of four million tonnes of raw sugar for two years.

Besides, the recent hike in the import duty on raw sugar to 40 per cent from 15 per cent is also likely to boost domestic prices. Further, ethanol blending requirements were doubled to 10 per cent.

Though these measures may provide some respite to the ailing sugar industry in the short-term, the long-term revival would depend on a scientific way to fix state advised price for sugar cane and link sugarcane and sugar prices, it said.

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