Sugar mills stuck with high-cost cane; margins seen hit

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Sugar mills stuck with high-cost cane; margins seen hit

Indian millers are facing the prospect of lower margins in coming quarters as the recent steep fall in prices has saddled them with cane bought at the height of the price boom this year.

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Indian millers are facing the prospect of lower margins in coming quarters as the recent steep fall in prices has saddled them with cane bought at the height of the price boom this year.

Limited availability of cane in all major producing states and a record sugar price ensured a stiff battle among millers for cane procurement, lifting prices to fresh highs.

"Sugar prices have dropped considerably whereas cane procurement continues at the same level even now. So, there will be a drop in margin," said B.J. Maheshwari, a director at Dwarikesh Sugar.

Compared to realisations from sugar sales of Rs 37 per kg two months ago, prices have dropped to Rs 32 now, Maheshwari added.

Indian millers procured cane at more than Rs 260 a quintal for the year-ending September 2010 compared with Rs 150-155 last year as sugar prices soared.

Local prices, at Rs 3,093.75 per 100 kg, have fallen over a fifth since the peak touched in early January.

Millers, who have already purchased more than 80% of their cane requirement for the year at a higher price, are now worried as prices have dipped below cost of production, threatening output prospects and profitability.

"Our challenge is to ensure steady production, which heavily depends on mills' capability to pour good prices to farmers," Vivek Saraogi, managing director, Balrampur Chini Mills said.

"Unfortunately, I see arrears building up if the current price trend is not reversed," he said adding the government must reverse all measures it had taken to curb prices recently.