International sugar prices may not move up: Sakthi Sugars

The price of sugar has declined globally but, last week it had increased by about USD 25 before coming down. According to M Manickam, MD, Sakthi Sugars, the shortage of ready sugar from Brazil led to the price spike.

In an interview with CNBC-TV18, Manickam says that he does not expect international prices to move significantly higher. With the monsoon not playing out according to expectations, Manickam believes there could be a decline in sugar production in Maharashtra and Uttar Pradesh.

Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: We have seen a decline in sugar prices globally. What is the sense you are getting both for raw sugar and for refined sugar globally? Do you think there will be more falls to come?

A: This was actually a correction in the forward month. The forward month actually had shot up by about USD 25 in the last week and it has kind of come back down. I would think there was a shortage of ready sugar because there was an expectation that Brazil will not be able to shift. There was a congestion, there were rains in Brazil. Probably, that fear is overcome and maybe the short was already covered. It is a temporary thing. We don't expect long term trend to come out of this.

Q: Will it be lucrative? After the fall, do exports still remain a viable option? Does rupee depreciation adequately make up?

A: What happened was even though the 45-Icumsa - that's refined sugar prices went up. The Indian sugar price offer did not really move up. They are still at USD 520. So, today I think India is a fixed price seller at USD 520 which is about Rs 28-29 so it is still there. We don't see a major impact.

Q: What is your expectation with regards to sugar production for next year because we have expectations that monsoon might not be what it was earlier estimated to be at and around 96% of Long Period Average (LPA). Give us a sense in terms of what you are expecting in terms of sugar production for this year?

A: We are hoping that the monsoon is a little weak, from a sugar industry perspective, then the production will come down a bit in Maharashtra and in UP. That will probably set the correction in place and we should have the sugar prices coming back to normal maybe by next year. Again, we have to wait till end of July or August to see whether the monsoon is really that much down or if it will have an impact on the sugar production.

Q: Why are you saying that sugar production or sugarcane production come down? The rule of thumb is that sugar production and sugarcane production move in a three year cycle. Are we already hitting the top you think?

A: Actually there is a 10 year cycle as well. I think with the 10 year cycle, if you really look at it, there is time for a shortage to come. That's the only thing which is saving the industry. It is not the government, it is not the bureaucracy. It is nature which is actually protecting us. So, I guess we are just waiting for it.

Q: What is the realization now? Is it breakeven?

A: Not yet. We are around Rs 29 and if you look at Tamil Nadu cane prices, it is about Rs 22 all toll, we should have 32 as breakeven. We are still about Rs 2-3 below breakeven.

Q: Along with the exports as well?

A: Yes, exports is not more than Rs 29.

Q: For Sakthi Sugars in particular, how exactly is business panning out for the quarter?

A: For the quarter, we are making operational profits and I think net profit as well. It is looking okay. But we are going into the off-season now. Basically, we will have two quarters of low crush and two quarters of high crush. Whatever we do in the two good quarters, we have to make up for the other two quarters. Normally, we expect little bit of pricing for us to take the whole into account.

Q: What is the debt and the interest rate payment position?

A: Interest rate, we are at a CDR of around 9%. So we are on target and we have repaid about 25% of our debt last year, which we were supposed to. On that front, we are on target. We don’t have a major issue on it.

Q: As of now, what are you expecting by way of cane and sugar output in the current year?

A: In the current year, we are looking at 26 million tonne of sugar production. I think that will be probably by the end of September. Next year, I think the optimistic estimate is 26 million tonne and probably we are looking at a lower estimate of around 24-25 million tonne. It is not going to be as low as we expect.

Q: Leave us with some thoughts because we are hearing a lot of optimistic noises from the governments' side in terms of sector reforms, etc. For the sugar industry in particular, what sort of reforms would you be more optimistic on?

A: As I had mentioned last time, I am not really looking forward to any major changes from the government. Right now, we are looking at how the ministry settles down. I think by next week we will have clarity on that.

As far as the sugar industry is concerned, what we have leftover is release controls and the 10% levy. Those are the only two things that the government has control over and maybe some controls on import and export, which again used to be much more liberal earlier and they are kind of clamped on.

So, open import and open export with duty lines in place and then decontrol of sugar in terms of levy and the release mechanism would help the sugar industry.