Despite the government has imposed stock-holding limits on sugar mills, prices of the sweetener in the domestic market are likely to remain firm in the next 3-4 quarters due to tight stock position, says a report. According to credit rating agency ICRA, sugar prices have remained firm and increased from around Rs 31,500/million tonnes in March to Rs 36,000/million tonnes in August and continue to hover around the same price in September, 2016.
This has been supported by an expected decline in the sugar production, actual decline in the domestic sugar stocks during sugar year (SY) 2015-16, and also a global sugar deficit scenario, which drove up international sugar prices, the report said. Further, ICRA said any further increase in prices in next 3-4 quarters would depend on expectations of sugar production during current sugar year, sugar mills’ own actions on supplies which depends upon their inventory-holding capacity, and the government action on price control measures.
“Domestic sugar prices are likely to remain firm in the next three to four quarters, given the tight domestic situation,” it added. As per ICRA senior vice president Sabyasachi Majumdar, while the government implemented stock holding limits in September, the move has not resulted in any significant impact on domestic sugar prices. “Sugar prices are expected to remain firm in the near term in spite of this, given the tight stock position,” Majumdar said. “However, imposition of export duty and stock holding limit measures may dampen prospects of a further significant price rise,” he added. Meanwhile, the report noted that mills in Maharashtra and Karnataka are likely to benefit from the rising sugar prices and the stagnant cane costs.
However, it added that cane pricing in Uttar Pradesh, is yet to be fixed for SY2016-17 and “will be crucial for the sustainability of the profitability for the UP-based sugar mills going forward”. “While the UP government has maintained the SAP (state advised price) at Rs 280/quintal during SY2016, for the fourth year in a row, the significant increase in the domestic sugar realisations is likely to act as a trigger for an increase in the SAP during SY2017, especially given that the State Assembly elections are due in 2017,” Majumdar said. “Thus, any significant increase in the quantum of SAP by the UP government is likely to negatively affect the contribution margins of the UP-based mills,” he noted.