SY13's production maybe hit due to monsoon: Simbhaoli Sugar

A deficient monsoon season so far has forced the Indian Sugar Mills Association’s hand to cut production of the sugar industry by about 4% to 25 million tonne for FY13.

GSC Rao, CEO, Simbhaoli Sugar tells CNBC-TV18 that they are sitting on surplus sugar production for now and are exporting the commodity as well. “There will not be much of volatility in sugar prices because of this estimate being downgraded,” he says.

At present, domestic sugar prices are stable around Rs 30/kg. Rao says prices may strengthen to Rs 32/kg.

Below is an edited transcript of his interview. Watch the accompanying video for more.

Q: On this production forecast that has been lowered because of the deficient monsoons, in your assessment, what kind of impact would this have on sugar prices from hereon? What kind of trajectory do you see?

A: The downgrading of the expectations of 2012 and 2013 is because the sugarcane area has marginally increased but there is a possibility of sugarcane yields being affected because of the delayed monsoon in Maharashtra and Karnataka although UP is not that much affected. So on the prices, not much volatility will be seen because we have enough stocks in the mills and there was good production of sugar in the current year.

We have to go forward and see how things will move. As such we are in a surplus position and are exporting sugar right now. There will not be much of volatility in sugar prices because of this estimate being downgraded.

Q: So with this 25 million tonne production target what exactly is the demand supply situation right now in terms of where you’ve pegged demand at and where supply is at including the stock that you mentioned?

A: We are at 22 million tonne of demand and then we have produced about 26 million tonne and we are exporting some sugar, about 2 million tons we’ll be exporting. So three months stock normally we keep as inventory i.e. about 35 lakh tonne, 3.5 million. So, more or less the conditions prevailing will remain the same.

In fact with the increasing sugarcane prices the sugar prices which are right now on the lower side will become a little firmed up which will be beneficial for the farmers to get the cane price in time. I don’t see a big variation or volatility in the sugar prices because of this estimate that has been made recently downgrading from 26 million to 25 million tonne.

Q: Where is it that prices are ranging at right now? We hear that even international raw have recovered a bit. What exactly is the pricing scenario both domestic and overseas?

A: The scenario in domestic is we are hovering around Rs 30 a kg or Rs 3,000 a tonne and maybe an Rs 100 increase per bag will be there. Internationally, the main issue is how the Brazilian crop will come in now. The Brazilian crop, if it is normal, the surplus asset is high this year which has gone to 7 million tonne.

So the surplus will take care of the inventories if at all there is a shortfall of sugar production all over the globe. We don’t see much of high volatility in international scenario also. I would call it as a more stable year 2012 and 2013 rather than a deficit or a surplus year.

Q: On international sugar prices, although you don’t see too much volatility, what kind of range can we see because now there will be additional Indian exports and there is that global surplus as well?

A: The situation is that the USD 600-700 international prices in the international market for white sugar and about USD 100 premium is there between the white and the raw, so we expect a give and take of about USD 50 for the international prices for our sugar and about USD 100 more for the refined wherever the refining happens.

In the domestic prices, I would expect that from Rs 3,000 to Rs 3,200 which is about Rs 200 variation will be there in the domestic markets. If the surplus of what we have will go out of the country as export OGL right now on the way, then we will be in a comfortable position in terms of availability of sugar and on the price front also.

Q: What kind of realisations do you think you can do in the next couple of quarters?

A: The exports will happen till November.  From Maharashtra, where the raw sugar is being exported through whatever channels, they are getting about Rs 1-2 per kg on exports that is about Rs 27-28 they are getting. Compared to the domestic market which is right now at balance, with the domestic market going up they will be getting less than the domestic market.

However, compared to the cost of production which they have and the prices which they are doing because of the transportation cost which they will be saving on being in Maharashtra, I expect about Rs 2 margin is there for the exporters in the international market at whatever prices they are getting. The same margin will be there in the domestic market if the prices continue at this level.

Over the next two quarters, by October-November the season will start. So the new sugar will be coming into place so whatever little price increase takes place, stability will be there. In September, in the festival season that will get evened out once the new sugar comes.