Weak rains but sugar prod to be balanced: Balrampur Chini

The weak monsoon so far has been playing truant and sugarcane production in states like Maharashtra and Karnataka have already dipped. In a situation like this, the Uttar Pradesh government is looking to introduce a special package for the state's sugar companies.

In an interview with CNBC-TV18, Vivek Saraogi, MD of Balrampur Chini sounded hopeful on the policy front, about rational cane pricing and other issues related to sugarcane production in UP.
Although, rainfall has been deficient in most parts of the country, Saraogi said, it is just perfect in east UP. However, according to an estimate by the Indian Sugar Mills Association (ISMA), production could be close to 25 million, he informed. He is quite optimistic about production and feels that even if the bad monsoon affects states like Karnataka and Maharashtra, where production could be lower by 20%, it will not lead to a huge mismatch in the demand-supply equation. Rather, it will be much more balanced this year. Below is the edited transcript of the interview on CNBC-TV18. Q: Before we talk about the situation that stands in terms of demand-supply, there has been a lot of talk that the UP government maybe considering some kind of a special package for the UP sugar companies. Is that going anywhere? Are you expecting to see something like that?
A: We are hopeful about UP, we are hopeful on a lot of fronts - policy, rational cane pricing in future and overall, we are hopeful about UP. Q: Things like sugarcane procurement tax, a transportation subsidy have also been reported, any movement along those lines that you are expecting?
A: We have been writing for this. We have been saying that there are a lot of cane areas now and the receivables on this policy and the cane areas match. So there have been a lot of representations. We have been trying our best and we are hopeful about all these fronts including what you just said. Q: How bad is the production situation this time around because of monsoon etc? We believe in Maharashtra, Karnataka the crop is affected. By how much can production dip you think?
A: I think Maharashtra, Karnataka is affected. In UP, I can definitely vouch for my part of UP which will be east UP. East UP rainfall is just perfect until now. In Maharashtra, Karnataka I am told, it could be 20% lower. Having said that, we still feel that in our last meeting we did a production estimate closer to 25 million. But, it is too early.
_PAGEBREAK_ Q: That is the target that ISMA has set out as well. We were speaking to some other sugar manufacturers who pointed out that supply was more or less in line. With this kind of output, do you expect there to be a big supply demand mismatch or do you think they are evenly placed?
A: If we have see from our last Indian Sugar Mills Association (ISMA) estimate date till now, all I can say is that monsoon has been a little worse than expected for sugarcane in Maharashtra and Karnataka. If 25 comes down to 24-24.5 or 24.5, still there is no huge mismatch as we proceed into next year.
But, that surplus overhang would definitely have been a thing of the past. So there is going to be a far more balanced situation and we are not going to remain in a surplus era. Q: So what is that doing for domestic prices?
A: Domestic prices have moved up in the last three weeks to a month. It has definitely moved up. Q: What kind of a range are you expecting in prices and is this just a temporary blip because of the production shortage or do you see prices trending higher this quarter and next?
A: I would feel that the prices which we are selling at right now in UP, it is around Rs 32. It is about Rs 32 plus, just around those levels ex-factory. We have told the government that with Rs 240 cane price last year and sugar price which we have sold till now, it has been at a loss. These are break-even levels. One does expect these prices to remain stable here. I don’t see any runaway price rise from here. Q: How are you reading the international price situation because of what is going on in Brazil – prices there have firmed up quite a bit to 22.5-23 cents?
A: Yes, I think the white sugar is around USD 650 and with the weak currency a lot of sugar is going out from factories in the south, particularly from the states of Tamil Nadu, Maharashtra and Karnataka. As we see in Brazil, there has been some rain disruption.
I am not so much of an expert on the international front. However, I would say that the price will not come off. I have always said 20 cents is a very strong bottom there also.