Sugar output may dip 19%, says Icra

Icra said, domestic sugar consumption is expected to fall by 4% compared to SY16

Sugar production is likely to decline by 19 per cent to 20.3 million tonnes during sugar year (SY) 2017, due to poor rainfall during previous monsoon in key producing states like Maharashtra and Karnataka, Icra said in a report on Thursday.

During SY17, Icra said, domestic sugar consumption is expected to fall by 4 per cent to around 24.0 million tonnes compared to SY16.

"Despite a decline in the domestic production, we project the closing stocks at 4-4.5 million tonnes at the end of SY17 season, which will be sufficient to meet the requirement of around two months of consumption," said Icra Ratings Senior Vice President Sabyasachi Majumdar."While this is lower than the normal stock requirement of three months, the levels of stocks will largely limit dependence on imports during SY17," Majumdar added.

Icra opined sugar prices were likely to remain firm in the next 2-3 quarters, due to tight stock position in the domestic and global markets. This was likely to augur well in terms of profitability of the UP-based sugar mills, it said. However, the western and southern sugar mills would continue to be impacted by the decline in the cane crushing volumes for most of these units.

While the prices declined marginally during November-December 2016, it has recovered to around Rs 37,000 per tonne in January-March 2017, due to the tight stock situation.

Although, Icra anticipates a 3-4 per cent decline in domestic consumption during the SY17, this is unlikely to affect the prices, as the impact of the decline in the domestic consumption might be more than offset by a higher-than-expected decline in production.

"Sustained healthy realisations, higher cane crushing volumes and higher recovery rates for SY17 season are likely to support the profitability for UP-based sugar mills despite an increase in the cane price by Rs 25 per quintal. The profitability of the western and southern-based sugar mills continues to be affected by the crushing volumes," said Majumdar.