UP sugar firms see rising prices for next 2 years

Despite huge investment of over Rs 4,000 crore pouring in the Uttar Pradesh sugar sector, companies are expecting prices to remain firm over the next two sugar seasons (that is, October-September).

While the prices are already on an upward move, companies expect prices to remain "firm over the next two years in the price band of Rs 1,725 per quintal (+/-50)", said R K Panpaliya, president-corporate affairs with Bajaj Hindusthan. The industry is hopeful that the upward movement of the cycle will remain there for the next two years.

Huge investment in the state will create an additional capacity of 1.25 lakh tonne crushing per day (tcd). At a 10 per cent recovery rate and 150-160 days of crushing, this capacity may lead to a rise in annual production by 20-22 lakh tonne, thereby taking annual production to 70 lakh tonne from the current 50 lakh tonne.

"Production from UP this year is around 50 lakh tonne. It is likely to touch 60 lakh tonne in 2005-06 and 70 lakh in the year after. Production is unlikely to rise further else the sugar cycle may become negative. Overall, the output rise of 20 lakh tonne in the next two years will be able to meet most of domestic demand, leaving a small scope, possibly for imports also," said Panpaliya.

After the two-year period, industry is hopeful that India will become an exporter of the commodity also.

"This will largely be due to surplus situation and the fast increasing need of ethanol as an energy source," said Sanjay Tapriya, director-finance with Simbhaoli Sugar.

With the European Union sugar subsidies gone, the world sugar trade is likely to see a short supply of 50 lakh tonne over the next 4-5 years, thereby giving an export potential to Indian millers and traders.

According to a report by Sucden (UK) Ltd, if oil prices remain high, the demand in the future could be predominantly for ethanol instead of it being used as a sweetener, leaving it permanently linked with the price of a barrel of crude oil.

"The demand is not only expected to be higher because of high oil prices, but also because it is renewable and has much better environmental characteristics, of high importance in a time of increased concerns about global warming," the report adds.

But will this expansion lead to millers scrambling for more cane acreage. Mawana Sugars chairman Siddharth Shriram says, "We cannot deny that but as the demand for sugar is on a rise, (now 4 per cent from the stagnant 3 per cent for over half a decade) things will be simpler."