Sugar mills face margin squeeze

The profit margins of sugar mills are likely to remain under pressure in October-December due to a sustained decline in the price of sugar following forecasts of higher production. The food ministry recorded a 7 per cent decline in the average sugar price in December to ~3,470 a quintal from ~3,733 a quintal a year ago. The average sugar price has declined by nearly 2 per cent in October-December from the same quarter a year ago.

Mills produced 6.94 million tonnes of sugar till December 15, up from 5.35 million tonnes a year ago, and are selling sugar at 8-10 per cent lower than its production cost due to excess cane availability. India’s sugar output is expected to rise 25 per cent to 25.1 million tonnes this year. Prices of molasses, rectified spirit and bagasse have also declined by up to 75-80 per cent, year on year, on estimates of higher cane crushing.

“Margins of sugar mills will come under pressure,” said BJ

Maheshwari, wholetime director and company secretary, Dwarikesh Sugar Industries.

Most sugar mills had reported

healthy profits in the OctoberDecember quarter last year.

Sugar prices have declined by nearly 15 per cent since the

beginning of the current crushing season in October, with the sugar S variety quoted at ~3,0503,100 a quintal. The Indian

Sugar Mills’ Association (ISMA) estimates sugar production cost at ~37 a kg. Most sugar mills are thus incurring losses.