Sugar mills fret as prices plunge of sugar and molasses

Data from ISMA shows the average cost of sugar production in Uttar Pradesh and Maharashtra at Rs 37 a kg and Rs 34 a kg

Sugar mills' revenue and profit are likely to be under pressure in the ongoing crushing season (the current sugar year, 2017-18, formally began on October 1), after recovering marginally in the 2016-17 season.

There has been a sharp decline in their product prices, following estimates of higher cane output.

Seasons 2014-15 and 2015-16 were bad for profitability; things improved in 2016-17 as many large mills showing a rise in net profit, following estimates of lower sugar production. There was s sharp rise in the prices of sugar and molasses, to a peak of Rs 36-37 a kg and Rs 8,800 a tonne, respectively. Prices of both did drop subsequently but their average realisation remained substantially higher than the cost of sugar production.

This year, however, the scenario has again turned against mills, with a fall in prices of both sugar and molasses. "At the current prices, mills are going to incur losses this year. The government is thinking about 120 crore consumers, putting five crore cane farmers at risk. But, once these farmers stop producing cane, there would be the huge scarcity of sugar and increased reliance on import. The government needs to protect cane farmers' interest," said Sanjiv Babar, former managing director of the Maharashtra Federation of Cooperative Sugar Factories.

Data from the Indian Sugar Mills Association (Isma) shows the average cost of sugar production in Uttar Pradesh and Maharashtra at Rs 37 a kg and Rs 34 a kg, respectively, this season. While the ex-factory realisation from sugar is Rs 34 a kg in UP and Rs 32 a kg in Maharashtra.

"The average ex-mill sugar price during 2016-17 in UP was Rs 36.5 a kg and in Maharashtra at Rs 35.4 a kg," said Abinash Verma, director-general at Isma.

"Sugar prices have declined by Rs 3 a kg across the country in the past month," said the finance head of a Mumbai-headquartered mill. Sugar contributes nearly 75 per cent of mills' turnover and Isma says this segment is losing money.

As for molasses, the price has declined to Rs 900 a tonne in UP and Rs 2,200 a tonne in Maharashtra. At the peak last year, this was Rs 8,300 a tonne. Distilleries say the price will decline further in the coming weeks.

Industry officials add that prices of both sugar and molasses seem to have bottomed out. But, with sugar production predicted to be higher this year at 25.1 million tonnes, compared to 20.3 mt last year, the expected turnaround in price would be insufficient, they say.