Sugar prices expected to remain firm in the near term: IRCA

PUNE: Given the deficit situation in the domestic and international markets, the sugar prices are expected to remain firm in the near term, says an ICRABSE -0.66 % report. This, coupled with the moderate cane prices seen for the current sugar year across most states, augurs well for profitability in the near-term.

Sabyasachi Majumdar, Head, Corporate Ratings, ICRA, said, “With recent Government estimates pegging sugar production at a 10% lower level as compared to last year, sugar prices are likely to remain firm over the three to four quarters. This apart, moderate cane price hikes effected in most states, notably UP, bode well for the industry profitability outlook in the short term.”
Domestic sugar prices have remained firm, having increased from around Rs. 31,500/MT in March 2016 to Rs. 36,000/MT in August 2016. After remaining stable at Rs. 36,000/MT in September, 2016, the surge in prices continued in October 2016, with prices reaching their highest level of Rs 36,200/MT in the last five years. The prices continued to remain healthy in November 2016 at Rs 35,500/MT, albeit a marginal dip, following the demonetisation announcement.
While the mills in Maharashtra and Karnataka are likely to benefit from the rising sugar prices and the relatively stable cane costs, several mills may see an adverse impact on volume sales arising out of lower production. On the other hand, while a moderate increase in cane pricing for UP-based sugar mills is expected to lead to a marginal dip in profitability from the levels seen in the previous two quarters (Apr-Sep 2016), absolute levels of revenues and profits are likely to be supported by  ..
“While the UP Government has increased the SAP to Rs. 305/quintal during SY2017 for normal variety, the increase has been moderate, especially after keeping the SAP constant for three years. High recovery rates, driven by cane developmental activities undertaken by the mills in the recent past, together with prevailing healthy sugar prices, are expected to enable the mills to absorb the impact of the increased SAP, and also maintain reasonable profitability,” said Majumdar.
Overall, ICRA expects efficient and forward-integrated sugar mills to report healthy profitability trends across most key producing states over the next two to three quarters.
 

Source: ECONOMIC TIMES