Sugar prices in Maharashtra, the second largest producer of the sweetener, hit a seven-year high of ₹4,020 a quintal on Thursday on back of strong demand and weak supply in the wholesale market.
Sugar production in the State is expected to fall 40 per cent to five million tonnes (mt) this season (started October last year) against earlier prediction 6.27 mt.
A good monsoon after two years of subsequent drought-like situation in the State has hit sugarcane output in Ahmednagar, Amravati, Nanded and Aurangabad.
Some of the sugar mills in Kolhapur, Sangli, Satara and Pune, which were not impacted by drought, are crushing at almost similar levels like last year.
Of the 170 sugar mills in Maharshtra, only 147 have started operations and among them 32 mills have already stopped production in just 30-40 days due to cane shortage and increasing production costs. As of December 31, the State has produced 2.52 mt of sugar against 3.37 mt in the same period last year. Despite expectation of higher production in Uttar Pradesh, sugar output this season may drop below consumption levels for the first time in seven years. India is expected to produce 22.5 mt this season much below the annual demand of 25 mt.
However, the ample carry-forward stocks will help the country meet local demand.
Veeresh Hiremath, Research Analyst, Karvy Comtrade, said most of the stockists have offloaded their inventory after the government imposed stock limit last year and lowering import duty may also not help as globally prices are firm.
“With prices firming up stockists are very cautious and are not building up inventory expecting government to impose stock limits again,” he said.
There are unconfirmed news that government may ban futures trading in sugar to cool down spot prices but that will not have much impact as the fundamentals are pushing up prices, he added.
Debt-ridden sugar mills have preferred to keep their mills shut rather than taking fresh debt to buy raw material. Cane prices have risen by 59 per cent over the last five years, increasing the overall production cost significantly.
The Centre has already warned that it would keep a close tab on retail sugar prices and will not let it move above ₹40 a kg. With the UP elections round the corner, the government may take immediate decision to arrest spike in prices.
The fact that government may cut import duty from the current level 40 per cent to increase domestic supply has led to more uncertainty. Globally too, sugar prices have gone up due to lower output expected in Brazil and Thailand.