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Sugar Production To Increase By 16-20% In 2018: ICRA

As per an ICRA note, while North Karnataka is likely to benefit from the monsoons, the mills in South Karnataka and Tamil Nadu may remain impacted by past trends of poor rainfall affecting sowing in past seasons.

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Sugar production in India is set to increase by 16 per cent - 20 per cent in 2018, to around 23.5 million million tonnes (MT) to 24.5 million MT, according to credit ratings agency ICRA report.

This growth will be driven largely by the increase in sugar production in Maharashtra and Uttar Pradesh. As per an ICRA note, while North Karnataka is likely to benefit from the monsoons, the mills in South Karnataka and Tamil Nadu may remain impacted by past trends of poor rainfall affecting sowing in past seasons.

However, even with this increase, production is likely to be matched with consumption, thus resulting in stable prices. On the negative side, increase in cane costs for the coming crushing season are likely to impact margins from Q4 FY 2018 onwards.

Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, said: “Despite increase in sugar production, the same would at best be at the same level as our estimate of consumption of around 24.5 million MT in 2018. Thus, the low closing stock levels of sugar (which declined to around 4.5 million MT in 2017 from 7.7 million MT in 2016) in the domestic market are likely to support the sugar prices in the near term. Any downside to sugar prices from the current levels is likely to be driven by the allowance of a further import of duty free sugar, which appears unlikely at this moment.”

The Cabinet Committee on Economic Affairs (CCEA) has fixed the fair and remunerative price (FRP) at Rs 255/quintal for 2018 season, an increase by 11 per cent compared to the previous year.

This is likely to increase the cost of production for sugar mills in FRP-following states such as Maharashtra, Karnataka, Andhra Pradesh, and Telangana etc. 

Out of these states, units located in Maharashtra and North Karnataka, are likely to reap the benefits arising out of higher production even though they are likely to be negatively impacted by higher costs.

“The worst affected will be mills located in the Cauvery region of South Karnataka and parts of Tamil Nadu due to the double whammy arising out of both higher cane prices as well as limited prospects of volume growth. For the states following state advised price (SAP) in northern India such as UP, whilst cost increases are likely (SAP in most of these states yet to be announced), these mills are likely to be benefitted by continued healthy volumes and recovery rates,” added Majumdar.