Mills fret as prices of sugar and molasses plunge

Sugar mills’ revenue and profit are likely to be under pressure in the ongoing crushing season (the current sugar year, 2017-18, formally began on October 1), after recovering marginally in the 2016-17 season.

For, there has been a sharp decline in their product prices, following estimates of higher cane output.

Seasons 2014-15 and 201516 were bad for profitability; things improved in 2016-17, with many large mills showing a rise in net profit, following estimates of lower sugar production. There was s sharp rise in the prices of sugar and molasses, to a peak of ~36-37 a kg and ~8,800 a tonne, respectively. Prices of both did drop subsequently but their average realisation remained substantially higher than the cost of sugar production.

This year, however, the scenario has again turned against mills, with a fall in prices of both sugar and molasses. “At the current prices, mills are going to incur losses this year. The government is thinking about 1.2 billion consumers, putting 50 million cane farmers at risk. But, once these farmers stop producing cane, there would be huge scarcity of sugar and increased reliance on import. The government needs to protect cane farmers’ interest,” said Sanjiv Babar, former managing director of the Maharashtra Federation of Cooperative Sugar Factories.

Data from the Indian Sugar Mills Association (Isma) shows the average cost of sugar production in Uttar Pradesh and Maharashtra at ~37 a kg and ~34 a kg, respectively, this season. While the ex-factory realisation from sugar is ~34 a kg in UP and ~32 a kg in Maharashtra. “The average exmill sugar price during 2016-17 in UP was ~36.5 a kg and in Maharashtra at ~35.4 a kg,” said Abinash Verma, directorgeneral at Isma.

“Sugar prices have declined by ~3 a kg across the country in the past month,” said the finance head of a Mumbai-headquartered mill. Sugar contributes nearly 75 per cent of mills’ turnover and Isma says this segment is losing money.