Delayed production may hinder government plans to end export restrictions.
Sugar makers in India may be forced to delay output as cane growers seek higher prices, reducing the prospect that the second-biggest producer will ease export curbs.
Farmers in Uttar Pradesh, the nation’s biggest grower, will withhold supplies if factories don’t meet their minimum price of Rs 200 ($4.49) a quintal, Avdhesh Mishra, president of the Cane Committees’ Association, said. Mills in the northern state paid an average Rs 285-290 last year, he said.
Delayed production in India may hinder government plans to end export restrictions, exacerbating global supply concerns and support a rally in sugar prices. Raw-sugar futures have jumped 85 per cent from a 13-month low on May 7, partly on concern that adverse weather will reduce the Brazilian crop.
“If mills spend Rs 20 as cost of cane to make a kilo of sugar and sell it at the prevailing price of Rs 26, they won’t be able to make profits,” said Sageraj Bariya, an analyst at Angel Broking Ltd. in Mumbai. “We don’t think there is any factor that will push up prices” as supplies increase, he said.
Raw sugar for delivery in March rose as much as 2.2 per cent to 24.05 cents a pound in after-hours trading on ICE Futures US Prices touched a 29-year high of 30.4 cents in February, before tumbling to a 13-month low of 13 cents on May 7.
Brazil will harvest 639 million tonnes in the year started May 1, 3.2 per cent less than estimated in April, the Sao Paulo unit of the US Department of Agriculture said October 4. India’s sugar output may be 26.7 million tonnes, Bariya said. That’s more than 25 million tonnes forecast by Farm Minister Sharad Pawar. A decision to end export curbs will be made after the festival of Diwali next month, Pawar said September 29.
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Worst performers
Bajaj Hindusthan Ltd., the nation’s top producer, Balrampur Chini Mills Ltd., the second-biggest, and Shree Renuka Sugars Ltd., are among the 10 biggest losers this year on the Bombay Stock Exchange 200 Index, Bloomberg data show.
Vivek Saraogi, managing director of Balrampur Chini, told analysts in July that he expected cane prices of Rs 175-180 for the year that started October 1.
“There will be a loss if mills pay Rs 200 a quintal for cane, compared with the market price of sugar,” said Sanjay Tapriya, finance director at Simbhaoli Sugar Mills Ltd. “I doubt mills will be able to meet farmers’ demand.”
Mills in Uttar Pradesh pay a so-called state-advised price set by the provincial government. The rate, aimed at shielding cane farmers, a powerful voting block, is typically higher than the minimum rate set by the federal government.
Last year, a price dispute delayed crushing by as much as four weeks in the northern state. Thousands of growers, holding cane stems, held demonstrations in November near the parliament, seeking Rs 280 a quintal, higher than the benchmark.
“Last year, we realised that we can fix our own price,” said Cane Committees’ Mishra. “We are confident we will be able to get it,” he said, referring to the farmers’ price demand.