UP govt likely to review cane pricing

The sugar millers in Uttar Pradesh may get some relief from high sugarcane prices in the sugar season beginning in October.

The SAP of sugarcane in the country's second largest sugar producing state has gone up to Rs 125-130 a quintal in 2006-07 from Rs 95-100 a quintal in 2000-01. The SAP is different from the statutory minimum price (SMP) of sugarcane fixed by the Centre.

In the 2006-07 crushing season (October-September), while cane prices went up by about 8 per cent, sugar prices fell by 35 per cent due to a bumper harvest. As a result, sugar mills in the state reported heavy financial losses in the April-June quarter. Some sugar mills have also moved the court challenging the state government's formula on fixing the cane prices.

The losses will be higher in the coming quarters if there is no relief on cane pricing as the mills are adding new capacities. The crushing capacity in the state is expected to go up from 711,000 tonnes crushed daily (tcd) to 802,000 tcd in the next season.

"More capacities would mean companies incurring higher losses next season as a result of higher output, which would depress prices further. The country's production is likely to cross 30 million tonnes next season, 2 million tonnes more than this season", said industry sources.

Even if the SAP remains unchanged at Rs 125-130 a quintal, the cane cost in producing one quintal of sugar will be Rs 1,350 (including transportation).

With conversion charges, the cost of producing one quintal will be Rs 1,750. This would translate into a loss of Rs 500 a quintal as the sugar prices may dip to Rs 1,250 a quintal. A company producing 1 million tonnes of sugar could incur a loss of up to Rs 500 crore.

Bloomberg adds:

Balrampur Chini Mills, India's second-biggest sugar producer, expects to boost production by 30 per cent next year as the company adds crushing capacity.

Production may reach 1.2 million tonnes in the year beginning October 1 from 920,000 tonnes this year, said Managing Director Vivek Saraogi in a phone interview from Kolkata.

Balrampur's crushing capacity will reach 73,000 tonnes a day after a new mill in Uttar Pradesh state starts next month. Higher production may not help the company reverse a slide in profit because white sugar prices in London is trading near a two-year low amid a global glut of the sweetener. The company and its bigger rival Bajaj Hindusthan are among the worst-performing shares on BSE-200 index in the past year.

"There's no good news on the horizon as far as prices are concerned," Saraogi said. "There's a supply overhang in the global market."