Sugar production likely to increase by 12 per cent in SY2021; continued government support critical for industry’s profitability: ICRA

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The domestic sugar production is likely to increase to 30.5 million MT, by 12.1% Y-o-Y, in SY2021, after adjusting for the impact of the diversion of B-heavy molasses and sugarcane juice for ethanol manufacture. ICRA expects the closing stocks for SY2020 at around 11.0 – 11.5 million MT after considering the consumption of 25 million MT (decline of 3.8% Y-o-Y) and exports of 5-5.5 million MT. This along with higher sugar production for SY2021 is likely to result in domestic sugar availability of around 42 million MT. In the light of the continuing sugar surplus scenario in the domestic market, continued government support would be critical for industry’s profitability.

Says Mr. Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, “This increase in production is majorly driven by the increase in cane availability in Maharashtra and Karnataka in SY2021. The domestic sugar consumption was adversely impacted by the nationwide lockdown owing to covid-19 pandemic due to loss of demand on account either closure or limited operations of several beverage/food manufacturing units during April-May 2020. With the easing of lockdown rules, the consumption is back to pre-covid levels in June-July 2020. While we expect a decline in the sugar consumption in SY2020, the same is likely to go back to 26 million MT levels in SY2021. The closing stocks are expected at around 10.5-11.0 million MT for the SY2021 season, which is higher when compared to the normative sugar stock levels.”

The production is likely to increase in SY2021 because of higher production in Maharashtra and Karnataka in SY2021, which was adversely impacted in the previous year due to drought. In addition, heavy rainfall and water logging during the last year (August – September 2019) adversely impacted the cane crop in a few regions of Maharashtra and North Karnataka for SY2020. Without considering the impact of the diversion of B-heavy molasses and sugarcane juice for ethanol manufacture in SY2021, the production is expected to be around 32.0 million MT. In Maharashtra, production is expected to increase by 64% Y-o-Y at 10.1 million MT and in Karnataka, by 26% Y-o-Y to around 4.3 million MT in SY2021. In UP, production is likely to decline by 3% Y-o-Y to 12.3 million MT. In SY2020, the production was higher by around 0.5-0.6 million MT than anticipated because of the cane which was generally used by the local gur and khandsari manufacturers, got diverted to sugar mills with the former’s operations prematurely shut due to the lockdown.

While the exports were on lower side during lockdown period given the modest port operations owing to the logistics issues and labour shortage, the pace picked up in May-Jun 2020. ICRA expects exports of around 5-5.5 million MT for SY2020. Assuming the Government continues support for exports for SY2021, considering the surplus scenario in the domestic market, exports are likely to be similar to the SY2020 figures.

The sugar prices moderated closer to MSP levels of Rs. 31/kg in March – May 2020 during lockdown period and then picked up to Rs. 32-32.5/kg in June 2020. The pick-up in consumption and pace of sugar exports is likely to support the sugar prices in the near term. However, given the sugar surplus scenario, any significant increase in the sugar prices is ruled out.

“The continued government support for sugar industry remains critical for supporting the profitability of the sugar companies going forward given the continuing sugar surplus scenario. The Government support in the form of subsidies for sugar exports, creation of buffer stock and continued support with MSP for sugar would be critical going forward. Also, the support for the ethanol manufacture in the form of price support to ethanol, especially those manufactured from B molasses and sugarcane juice and the interest subvention of loans for augmentation of distillery capacities is likely to support the industry during times of over-supply”, Mr. Majumdar added.

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