Over a third of Maharashtra's sugar mills shut on lower cane availability

Sugar output in the state down 28% to 3.14 mn tonnes as of Jan 15; wholesale prices surge 5%

About 38 per cent of the sugar mills in Maharashtra have been forced to shut down this year due to inadequate supply of cane from farmers.

Data compiled by industry body Indian Sugar Mills Association (ISMA) showed that 149 sugar mills started crushing cane this year in the beginning of the season. However, 56 mills have already announced closure due to the scarcity of cane in the state. Consequently, total sugar output in the state declined by as much as 28 per cent to 3.14 million tonnes as of January 15, from 4.38 million tonnes produced by the same time last year.

Interestingly, ISMA estimates total sugar output at 10.48 million tonnes which is 5.34 per cent lower than last year's level of 11.07 million tonnes. Also, sugar sales in India declined by eight per cent during the October-December quarter due to weak consumer sentiment following slow pick up from bulk users and deferred demand from retail consumers, following the demonetisation-led liquidity crisis.

Data compiled by ISMA showed mills in India sold / dispatched 5.98 million tonnes of sugar in October-December 2016, as compared to 6.53 million tonnes in the corresponding period last year.

The decline in despatches, however, has helped sugar prices firm up both, in spot and futures markets. While the commodity surged five per cent since December 2016 to hit a level of about Rs 40 a kg in the wholesale markets, sugar for near month delivery on the National Commodity & Derivatives Exchange Ltd (NCDEX) shot up nearly eight  per cent to trade currently at Rs 3,849 a quintal.

To discourage excessive speculation on its platform, however, NCDEX has raised overall margins to 55 per cent including initial, additional and special cash margins.

"Assuming that the demand may remain at the same level as last year, during the remaining nine months of the season and/or may slightly improve over the current level, total domestic sales of sugar in the country in sugar season (SS) 2016-17 could get restricted to around 24.5 million tonnes as against 24.8 million tonnes despatched in the same period last year," ISMA said in a statement.

ISMA has urged the Reserve Bank of India to lower the minimum threshold limit to Rs 100 crore from the existing Rs 500 crore under the Scheme for Sustainable Structuring of Stressed Assets (S4A) scheme to benefit across all mills in the industry. The current threshold limit, however, benefits only select large sugar mills in India.

ISMA clarified that the average cost of production of sugar on an all-India basis has increased by Rs 3 to Rs 4 per kg in the current SS2016-17 over last year. The average cost of production will, therefore, works out to around Rs 36.50 per kg.