Domestic sugar prices likely to be supported by higher than anticipated sugar exports and lower sugar production for SY2020 season: ICRA

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On expectations of global deficit, sugar prices have risen from $313/MT in August ’19 to $388/MT in January’20. This is likely to support the sugar exports for SY2020.

The average sugar prices remained rangebound between Rs. 32,000-33,000 during November 2019 – February 2020. In the near term, the prices are likely to be supported by the lower sugar production and the higher sugar exports for SY2020. The recent increase in the global sugar prices would support the exports in the near term.

Mr. Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, said: “The sugar prices remained rangebound at Rs. 33,000-34,000/MT in August – October 2019. While there has been some decline in prices with the fresh supply hitting the markets owing to onset of cane crushing for SY2020, the prices remained range bound Rs. 32,000-33,000/MT during November 2019 – February 2020. These prices are likely to be supported in the near term by the lower sugar production and the increase in the sugar exports in SY2020. The expectations of global deficit for 2019/20 pushed the prices to $354/MT in December 2019 and to $388/MT in January 2020 from $313/MT in August 2019. This is likely to result in increase in the sugar exports for SY2020. The exports in the current season have been at 1.6 million MT as on January 2020, and are expected to be around 4 million MT for the entire season, higher by around 25% on a Y-o-Y basis.”

Domestic sugar production estimates for SY2020 at 26 million MT is lower by 21% Y-o-Y in SY2020. This is primarily due to the decline in cane availability in Maharashtra and Karnataka due to the drought last year and heavy rainfall/water logging during the current year (August – September 2019). ICRA expects the domestic sugar consumption to increase by around 2% to 26.5 million MT in SY2020. Considering that the exports are likely to be around 4 million MT, the closing stocks still would continue to remain high at around 10.0 million MT.

“In case of exports, given the prevailing international prices, the companies are likely to incur losses. However, these are likely to be largely offset by the Rs. 10.44/kg of export subsidy. Further, the mills would also save on the interest and storage costs to the extent of sugar exported. The Government support in the form of subsidies for sugar exports is likely to support the liquidity of mills in the near term”, added Mr. Majumdar.

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