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Sugar companies are likely to see a turnaround in financial performance in the coming quarters, on a spurt in realisation from the sweetener, following a global deficit forecast by the International Sugar Organisation (ISO).
On Monday, the spot market price of sugar hit its highest in four years at Rs 3,750 a quintal at the Vashi market, Navi Mumbai.
There has been a proportionate increase in mill gate realisation, with the ex-factory price up nearly 20 per cent to Rs 3,000–3,100 a qtl. The average cost is estimated at Rs 3,200-3,300 a qtl but producers would generate some profit, with the various incentives offered by the respective state governments and higher realisation from byproducts.
The M-30 grade shot up to Rs 3,317 a quintal in the March quarte, up 18 per cent jump from March last year. It has a low of Rs 2,503 a quintal for the quarter September of 2015. This shows significant improvement in realisations of mills and a clear sign of the sector coming back on track.
“Mills are certainly on the path of turnaround, due to lower production estimates in the current crushing season and an overall five million tonnes of global deficit forecast by the ISO. Next year, too, production in India is estimated to decline by (at least) two mt, expected to keep the price elevated. Thus, mills’ realisation would go up proportionately,” said Afshan Sayyad, an analyst with Dolat Capital.
Several global consultancies had last year forecast a deficit of 2.5–3 mt for the current year. ISO raised the deficit forecast to five mt in early March. Consequently, average sugar prices on the benchmark InterContinental Exchange rose to 14.37 cents a pound in March from 11.3 cents in September 2015.
Indian production estimated are lower for the current year and are forecast to fall further next year. Indian Sugar Mills Association (Isma) has estimated 26 mt output this year; the Union food ministry is understood to have cut the estimate further, to 25.6 mt. Last year, overall production was 28.3 mt.
ISO’s estimate of a global deficit at five mt this year would make it the first such, after several years of surplus, says Abinash Verma, director-general of Isma, also noting the expectation of a deficit next year, too. "This has helped a rebound in global prices from 11.5 cents a pound about three months earlier to 16 cents a lb now. In India, too, prices have been rising steadily," he said.
Output in Maharashtra is estimated to decline 24 per cent in the 2016-17 cane crushing season, to six mt from an estimated 8.5 mt in season 2015-16 and 9.3 mt in 2013-14. There is drought in some of the major growing regions there and, hence, cane sowing is likely to remain lower. This has raised hope for a surge in sugar prices and mills' realisation.
