Sugar prices to remain firm on tight stock position: ICRA

Sugar prices are likely to remain firm due to tight stock situation despite increase in sugar production, ICRA said in a report.

“Despite increase in sugar production, the same would at best be at the same level as our estimate of consumption of around 24.5–25.0 million tonne in SY2018 (sugar year).Thus, the low closing stock levels of sugar in the domestic market are likely to support the sugar prices in the near term,” ICRA Ratings Senior Vice President and Group Head Sabyasachi Majumdar said.

“The expected tight sugar stock situation is likely to support the domestic sugar prices in the near term which are likely to remain firm,” the report added.

Latest estimates indicate domestic sugar production for SY2018 is likely to increase by 20–23 per cent to around 24.5–25 million tonne, driven principally by a recovery in cane availability in Maharashtra and north Karnataka supported by monsoon and an expected increase in sugar production in Uttar Pradesh to new high of around 10 million tonne, said the report.

ICRA anticipates sugar stocks of around 4.5–5 million tonne at the end of the forthcoming sugar season SY2018.

While sugar prices are likely to remain firm, increase in cane prices might result in some moderation in margins from the third quarter of this financial year.However, the margins and cash flow generations for most mills with efficient operations, forward integration and adequate stock are likely to remain satisfactory, it added.

This move is unlikely to have any significant impact on sugar prices or profitability of the sugar mills in the near term, given that the quantum of import permitted is very small. ICRA opined that the government’s move to import 30 million tonne sugar is unlikely to have any significant impact on prices or profitability of the mills in the near term as the quantum of shipments permitted is very small.

“Including the imported sugar, the closing stocks for current season are estimated to be around 4.5–5 million tonne, which would be sufficient to meet the requirement of around two months of domestic consumption. This is still lower than the normative stock level of three months (around 6 million tonne) and also previous year’s closing stock level of 7.8 million tonne,” Majumdar added.

“This move could supplement sugar supplies in the sugar deficit southern and western states and also benefit consumers from possible price shocks in the festive season,” he said.

However, the small quantum of additional supplies is unlikely to have any significant negative impact on the prices or profitability of sugar mills in the near-term,” he added.

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