Industry Update     

Published: Feb 28, 2023
Updated: Feb 28, 2023

Sugar

Rains dampen sugarcane output

“While commenting on the production figures, Subodh Kumar Singh, Additional Secretary in the Food Ministry, indicated that “production would not be lower than 340-345 lakh tonnes, which means there is potential for some additional quantity for exports.”

In the current sugar marketing year 2022-23 (Oct-Sept), various agencies are putting out different sugar production figures. Recently, Indian Sugar Mills Association (ISMA) has estimated a 5% fall in sugar production to 340 lakh tonnes, as it expects more quantities of sugarcane juice to get diverted for the production of ethanol. In the previous season (2021-22), sugar production stood at 358 lakh tonnes.

The deficit in sugarcane production in the current year is most likely from Maharashtra, where it is estimated to decline to 121 lakh tonnes against 137 lakh tonnes in the previous year. Uttar Pradesh might see a marginal decline from 102 lakh tonnes to 101 lakh tonnes whereas Karnataka is likely to witness a decline of 4 lakh tonnes from 60 lakh tonnes to 56 lakh tonnes.

Citing the reasons for the decline, Sugar Commissioner of Maharashtra Shekhar Gaikwad explained, “Due to adverse climatic conditions in different parts of the state, sugarcane production will be going down in the ongoing season. Continuous rains rendered the ground wet for long periods which impacted sugarcane cultivation. As a result, the crushing season will be over early compared to the last year. Currently, 199 factories are operational in the state.” It is worth mentioning that Maharashtra and UP together account for around 60 per cent of the country’s sugarcane and sugar output.

This year there will be an estimated diversion of 45 lakh tonnes of sweetener towards ethanol manufacturing vis-à-vis 32 lakh tonnes in the previous year. Sugarcane juice, syrup and molasses are being diverted to ethanol making.

EXPORT QUOTA

India exported 110 lakh tonnes of sugar in the previous year and for the current season, the government has already permitted the export of 60 lakh tonnes to be exported by May 31, 2023, and accordingly a mill-wise export quota has also been issued. According to the latest available figures, about 28 lakh tonnes have already been shipped out of the country and a further 7 lakh tonnes are in the pipeline. According to ISMA, sugar mills have entered into export contracts of 55 lakh tonnes so far.

Food Secretary Sanjeev Chopra said recently that “the government will take a call next month (March 2023) on increasing the sugar export quota from the present 60 lakh tonnes after assessing the domestic production and demand with the State Sugar Commissioners. Sugar production is estimated to be lower because of bad weather in some producing states.”

On the other hand, while commenting on the production figures, Subodh Kumar Singh, Additional Secretary in the Food Ministry, indicated that “production would not be lower than 340-345 lakh tonnes, which means there is potential for some additional quantity for exports.”

PRICING ISSUE

Global sugar prices are ruling at elevated levels between Rs 33,000 and Rs 40,000 a tonne in the near term. Moreover, prices are likely to continue to rule firm due to a couple of reasons. Despite higher production in Brazil and Thailand, there is a bit of concern over lower production of sugar in the European Union and India. There is also an apprehension that the Indian government might not allow additional exports apart from the six million tonnes permitted.

London-based global diversified financial services firm Marex has said that sugar stocks are low, and supplies from the new crops might continue to disappoint. “We are in an era of extreme weather . Consumption may have grown a bit more than we anticipated. We need to keep prices high enough to persuade producers and consumers to continue to try and squeeze production higher and consumption lower.”

Fitch Solutions, another leading global consultancy firm, opined that the more significant development in the global sugar market was the recent downgrade in India’s shipment (exports) outlook by ISMA to 6 lakh tonnes. Adding to that, Marex said the lower end of the sugar price is defined by ethanol parity plus a premium, which will depend on prices from April onwards. Fitch Solutions has concluded that India’s ethanol policy to increase the blending of petrol will encourage diversion and that would set a floor price for the global sugar market.

Sugar is still under government control, being considered a politically sensitive commodity. However, since the last four years in particular, the industry is witnessing fresh sizeable private sector investments on a yoy basis in capacity addition in both sugar and ethanol.

ETHANOL FACTOR

The government’s highly ambitious target of ethanol blending in petrol from merely 5% to 20%, that too ahead of its original schedule, and the price comfort being provided to mills in domestic territory supported with gradual sustainable exports at reasonably good price realizations, has undoubtedly brightened the prospects for the industry. Beginning in December 2022, the government has raised the price of ethanol extracted from sugarcane juice to Rs 65.60 per litre from Rs 63.45 earlier.

Giving his opinion on the mills’ performance, Mr Chopra has said, “The mills are earning good revenue from different streams, including sweetener and ethanol.” He expressed the confidence that “20% ethanol blending with petrol would be met by sourcing ethanol from different feedstock, including sugarcane and grain.”

SWEET INVESTING!

Amongst the listed sugar stocks with integrated facilities and bright prospects with capex, Balarampur Chini, Dhampur Sugar, EID Parry, Dwarikesh Sugar, Bannari Aman Sugar, DCM Shriram, Triveni Engineering and Dalmia Bharat are worth accumulating in small lots at every decline. Considering a two-year horizon, Bajaj Hindusthan and Shree Renuka Sugars could also become good turnaround candidates if their revival plans go off as planned.