Domestic sugar industry has started showing signs of turnaround with surging prices and depletion in buffer stocks due to decrease in global as well as domestic production and steady growth in consumption, a report said.
For the past two sugar seasons, the industry was witnessing a challenging phase marked by extreme volatility in prices and lopsided margins for sugar mill owners, rating agency Care said.
It expects stable outlook for the industry in the medium-term on the back of favourable developments in sugar season 2015-16 (SS15-16), running from October 1-September 30.
Care Ratings said the domestic market envisages decrease in production of sugar from about 25.2 MT in SS2015-16 to about 23.3 MT SS2016-17.
This is because lower area under cultivation for sugarcane during SS2016-17 (from approximately 5.3 million hectares in SS2015-16 to about 5 million hectares in SS2016-17), lower opening stock of about 7.2 MT in SS16-17 and a steady rise in consumption would further deplete the closing-stock of sugar, it said.
Hence, the sugar price is expected to remain stable, providing reasonably good margins to mill owners.
On the other hand, government has introduced measures such as imposition of stock holding limits at the traders' end, imposition of export duty of 20 per cent and withdrawal of excise duty exemption on ethanol supplied for blending in order to keep sugar availability in domestic market intact, Care Ratings Analyst Aksha Jain said.
Sugar prices started declining from August 2014 on account of surplus stocks both in domestic and global markets.
Wholesale price of sugar slumped from Rs 33.76/kg in August 2014 to a low of Rs 26.40/kg in August 2015 and remained below Rs 30 per kg for almost half of production period in the SS2015-16.
The country's sugar production is estimated at about 25.20 MT in SS2015-16, a 10.95 per cent drop from 28.30 MT in SS2014-15. At the same time, sugar export is expected to remain about 2 MT higher than imports in SS2015-16.
During SS2014-15, in order to improve domestic sugar price sentiment and make Indian sugar exports competitive, the government introduced various measures to boost exports and curtail imports.
In September 2015, government announced Minimum Indicative Export Quotas (MIEQ) for mills and co-operatives for mandatory exports of 4 MT of sugar in 2015-16.
On the other hand, as a measure to curb imports, government enhanced import duty on sugar from 25 to 40 per cent from April 30, 2015.
As a result, the country's export increased by 12.40 per cent from 2.58 MT in FY15 to 2.90 MT in FY16, while import during the same period increased marginally by 0.10 MT to 1.10 MT, Care said.
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