An expected fall in sugar production in the next year is likely to keep prices of the sweetener high in the coming quarters, credit rating agency Icra said today.
"With production likely to decline next year and prevailing international prices and import duty deterring imports, Icra expects sugar prices to be supported at the current level (Rs 35/kg) in the next 12 months," an Icra statement said.
The ex-factory price of sugar has increased since April onwards and have touched Rs 35 a kg now. Sugar prices were in the range of Rs 28-30 a kg prior to April, it said.
In the medium-term, sugar price trends will continue to be determined by the three factors -- next year's production, global crude oil prices and government's import and export policy, it added.
Icra Senior Vice-President Sabyasachi Majumdar said: "The long-term prices and profitability of Indian sugar companies would remain highly cyclical and dependent on domestic and international supply-demand trends."
In the current year, the operating profits for mills in most parts of the country barring Uttar Pradesh have been supported by higher volumes and improved conversion margin, however the impact at the net level has been moderated by higher interest cost, he said.
According to Icra, the country's sugar production is expected to decline to around 23.5-24.5 million tonnes in the 2012-13 marketing year (October-September) from 26 million tonnes this year.
Maharashtra is likely to witness the largest decline, driven mainly by weak and delayed monsoon in several key growing regions, it added.
Stating that improved prices are a positive for the sugar industry, the rating agency said, "Fixation of cane prices for the 2012-13 will remain a crucial determinant for profitability of sugar mills in the coming sugar season."
This apart, government action in ensuring a decontrol of the sugar industry and a rational linkage between cane prices and sugar prices will remain critical for the fortunes of the sugar industry, especially in states governed by the state advised price (SAP) mechanism, it said.
illers' net realisation from sugar has increased to Rs 35 a kg in the fourth quarter of the 2011-12 marketing year from Rs 28-30 a kg prior to April 2012, it added.
