Investment information firm ICRA has said that domestic sugar production estimates for season year (SY2020) have been revised downwards by 7.8 per cent to 26 million tonnes from the earlier preliminary estimate of 28.2 million tonnes.
This along with the expected exports of 3.5 million tonnes (as against the government's target of 6 million tonnes) in SY2020 is likely to improve the demand-supply situation in the domestic market, thus supporting the sugar prices in the near term.
"We expect the closing sugar stocks for SY2020 at around 10 to 10.5 million tonnes post downward revision of the sugar production estimate as against 12 to 12.5 million tonnes earlier," said Sabyasachi Majumdar, Senior Vice President and Group Head at ICRA Ratings.
"Hence, the domestic demand-supply situation will relatively be better, supporting the sugar prices in the near term, which are currently hovering around Rs 33 to 34 per kg."
Further, the fair and remunerative price (FRP) is fixed at Rs 275 per quintal in SY2020 which is the same as that in the previous year. This non-increase in FRP sugarcane price is a saving grace for the sugar industry in the face of the supply-induced pressures, said Majumdar.
The production is likely to be lower by 21 per cent when compared to 32.9 million tonnes in SY2019.
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While the cane availability in Maharashtra and Karnataka was adversely impacted due to drought last year, heavy rainfall and water logging during the current year (August to September 2019) have further adversely impacted the cane crop in a few regions of Maharashtra and north Karnataka.
In Maharashtra and Karnataka, the production is likely to decline by 42 per cent year-on-year and 28 per cent year-on-year to 6.2 million tonnes and 3.2 million tonnes respectively.
The production in Uttar Pradesh is likely to remain healthy at 12 million tonnes, largely similar to that of the previous year.
ICRA expects sugar consumption to increase to 26.7 million tonnes in SY2020 and the consumption is likely to marginally outstrip production by around 0.7 million tonnes.
Higher ethanol manufacture remains critically dependent upon the continuation of existing government support to the industry in the form of price support to ethanol, especially those manufactured from B molasses and sugarcane juice.
In this regard, the government has continued the remunerative prices for the ethanol produced from C-grade molasses, B-grade molasses and sugarcane juice for season 2019-20.
ICRA positively noted that several large sugar mills' distillery capacities will become operational in SY2020 and SY2021.
"However, the recent increase in the molasses reserved quota for country liquor manufacturers to 18 per cent in SY2020 from 12.5 per cent in the last sugar season in Uttar Pradesh is likely to have marginal impact on the profitability of distillery segment of these sugar mills," said Majumdar.