Government policies set to brighten life for sugar companies
Dry patch in Thailand, unseasonal rains in Maharashtra and supportive policies of the government have come together to sweeten the fortunes of the sugar companies – even if temporarily.
The Indian sugar sector, which has been struggling from high production and inventories in the past two years, is now expecting a production deficit in the sugar year 2020 (October 19 – September 20). This, along with a 20 per cent rally in the global prices in the past three months, bodes well for sugar .
India’s sugar production for SY20 (sugar year 20) is expected to be lower by seven million tonnes to 26 million tonnes due to unseasonal rains in Maharashtra affecting sugar cane produce and lack of water supply in the southern states. This should balance the high inventory of 14 million tonnes from high production of the previous two years (33 million tons in SY19). Experts also say the government has been supporting the sector by retaining the minimum sugar price of 31 per kg and encouraging exports.
The government has allowed upto six million tonnes of export, which attracts ?10.5 per kg subsidy. As a result, sugar prices have rallied from lows of 25-26 per kg in SY19 to 32-33 kg.
India has exported over two million tonnes of sugar in SY20 so far and is expected to export upto five-six million tonnes by the end of the sugar year.
Global sugar prices have risen by 20 per cent in the last three months after supply crunch from Thailand due to dry season. India, Brazil and China are the largest sugar producers contributing near 40 per cent of the global production. The ethanol story, too, has gained momentum, said Uttar Pradesh based listed sugar producers that ET spoke with but requested not to be quoted due to the silent period before the quarterly results. The government is encouraging ethanol production from sugar directly rather than from molasses that would sacrifice another four to five million tonnes capacity, said the producers. The northern state of Uttar Pradesh has emerged as the sugar producing hub over the past few years after the introduction of Co 0238, a technology which is conducive for the state’s climatic conditions. Data since 2010 show that UP is the only state that has seen rise in sugar production, while other major states such as Maharashtra, Karnataka, Andhra Pradesh and Tamil Nadu have seen a consistent decline.
Uttar Pradesh now contributes near 43 per cent of country’s production from 25 per cent, ten years ago. Given this, the state based sugar companies such as Dhampur Sugar, Dwarikesh Sugar and Balrampur Chini may gain momentum on bourses.