Sugar prices may rise by Rs 2 per kg after April on supply constraints in the wake of expected fall in domestic output of the sweetener, rating agency ICRA has said.
While sugar mills are likely to benefit from steady sugar and by-product realisation, growth in cane prices will impact profits of sugar mills adversely in the ongoing 2012-13 marketing year (October-September), it noted.
Pegging country’s overall sugar output at 23-24 million tonnes and consumption at close to 23.5 million tonnes for this year, ICRA said that domestic prices could firm up due to supply pressure in the second half of this year as extra stocks would be 6 million tonnes sufficient to meet three months demand.
“Given the production decline, ICRA expects a marginal increase of Rs 1,000-2,000 per tonne in the second half of 2012-13 from current levels,” it said.
Currently, ex-mill price of sugar is Rs 31-32 per kg, while rates in the retail market are ruling at Rs 40 per kg.
In the medium terms, ICRA said sugar price trend will continue to be determined by three factors. “Firstly, the domestic sugar balance. Secondly, the global crude oil prices, which will determine the raw sugar- ethanol mix in Brazil, the world’s largest producer and exporter; and finally, government’s policies regarding exports of sugar and import duties.”
Last year, sugar production stood at 26 million tonnes. ICRA has said that the fall in output this year was due to weak and delayed monsoon in several key growing regions.
Maharashtra is likely to witness the largest decline in sugar production this year followed by Northern Karnataka although Uttar Pradesh is likely to witness growth in production because of higher sowing in previous seasons and more favourable weather conditions, it said.
On performance of sugar mills this year, ICRA said the operating profits for millers in most parts of the country barring Uttar Pradesh has been supported by higher volumes and improved conversion margins, however the impact at the net level has been moderated by higher interest costs.
While margin pressures will be partly offset by improved volumes for UP-based sugar mills, in Karnataka and Maharashtra reduced crushing will also impact profits for most mills, it added.