The bullish trend in sugar prices could help companies such as Simbhaoli Sugars Ltd and Mawana Sugars Ltd prune their losses and improve earnings.
Prices of sugar have firmed in recent weeks on global cues and concerns over dry conditions affecting the crop in Maharashtra and Karnataka. Global supplies have been tight on harvest delays in Brazil, the world’s largest producer, as also in Australia.
“Sugar prices have inched closer to our cost of production, but it is still not a bullish situation. Stability in prices at these levels should help us mitigate the losses,” said Mr G.S.C Rao, CEO, Simbhaoli Sugars Ltd.
Sugar producers in Uttar Pradesh have been reeling under the impact of high cane prices. The cost of production in UP is higher at Rs 34 a kg because of high cane costs and lower recovery of 8.5 per cent, while it is about Rs 30 a kg in Maharashtra.
Millers are hopeful that prices will stabilise at current levels. Spot prices in Muzzafarnagar, UP, moved up to Rs 3,451 a quintal on Thursday against Rs 3,100 a quintal in January, a growth of 11 per cent. Similarly, in Kolhapur, Maharashtra, the spot prices have moved up by 13.5 per cent over the same period to Rs 3,300 a quintal from Rs 2,907 a quintal in January. The domestic and global futures indicate to an upward trend in prices.
Mr Abinash Verma, Director General, Indian Sugar Millers Association, said: “The prices are reaching a break-even level now for millers in North, which should have happened some six months earlier. They still have cane arrears to be cleared.” . Mr Verma expects prices to stabilise at current levels as there are enough supplies.
Some of the sugar producers have started posting profits in recent quarters, but the margins are still under pressure. The current uptrend in prices would also help lift their margins.
Cane arrears, as on May 31, stood at a total of Rs 5,123 crore against Rs 9,900 crore at end of March. UP still tops the list with arrears of Rs 3,162 crore (Rs 5,531.99 crore as of March-end), followed by Karnataka at Rs 400 crore (Rs 1,423.29 crore) and Maharashtra Rs 170 crore (Rs 513.48 crore).