 "UP sugar mills in sweet spot with 0.5% higher recovery")
Sugar mills in Uttar Pradesh are expecting better days ahead due to sharp variation in the climate yielding 0.5 per cent higher recovery this year higher than last year.
The average recovery of sugar was witnessed at a record 10.67 per cent last year. This year, however, the recovery in some cane blocks have reported a jump of 1 - 1.5 per cent with almost similar to last year on others. The industry, therefore, estimates average increase in recovery by 0.5 per cent.
The increase in recovery would proportionately help raise sugar output this year. With sugar price remained elevated, declined Rs 1 - 1.50 a kg due to lack of lifting due to demonetisation which analysts expect to recover with the pace of ease in liquidity, mills are expected to earn better profitability this year than the previous year.
"With liquidity getting easier day by day and price remained elevated, we can certainly expect profitability for Uttar Pradesh sugar mills to report higher this year," said Deepak Guptara, Secretary, Uttar Pradesh Sugar Mills Association.
Meanwhile, the industry body Indian Sugar Mills Association (ISMA) estimated sugar output in Uttar Pradesh at 7.66 million tonnes for the crushing season 2016-17 (ending with September 2017) as compared to 6.84 million tonnes produced in the previous year. Interestingly, the second set of satellite images reveals this year's cane acreage almost similar to last year at 2.31 million ha.
ISMA in its recent forecast said, "Though there was poor rainfall in the initial months of the monsoon season, rains in the latter part of south-west monsoon would help in sugarcane yield, resulting in higher sugarcane production in SS2016-17. Since sugar mills have cleared cane price of farmers to large extent, it is expected that the cane diversion to other sweeteners like gur and khandsari may fall. Since the acreage under the high yielding and high recovery variety is much more than last year, cane availability for sugar production would remain higher this year."
Sugar mills' realisation shot up to Rs 36.50 a kg till demonetisation was announced on November 8 due to lower production estimates this year and a sharp increase in the sweetener prices globally. But demonetisation-led currency crisis weakened sentiment due to a sharp decline in consumer demand. Consequently, sugar mills' realisation slumped by 1.50 - 2 a kg due to the lack of lifting of inventory from stockists.
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"Apart from that, new season sugar has also come into the market resulting in the last year's stock is selling at a discount. According to industry sources, some cash - crunch companies are selling sugar are selling their inventory desperately. Also, buying at the retail level is much lower. Bulk consumers also have reduced their offtake resulting into the weak demand of sugar," said an industry source.
Meanwhile, trade sources believe that cost of production has risen for sugar mills in Uttar Pradesh due to 10 per cent increase in cane state advised price (SAP) to Rs 305 a quintal this year from Rs 285 a quintal last year. Given that sugar output in India is estimated to remain around 23.37 million tonnes, nearly 7 per cent lower than last year, its prices are likely to remain elevated this year.