Sugar stocks are rallying on the back of low production output of the commodity. Vijay Banka of Dwarikesh Sugar Industries says that prices of the sweetener is reasonable and there is enough stock in the system.
Sugar prices have been rallying ever since ISMA released the data on sugar production, which fell by 18 percent in the October-February period of the previous marketing year.
“Although the production estimates have been revised downwards, there is enough stock in the system. I don’t foresee flaring up of prices in the coming month, said Vijay Banka, Wholetime Director and CFO at Dwarikesh Sugar Industries.
Sugar stock in India, world’s second largest sugar producer after Brazil, initially was at around 7.7 million tonne and currently, the production capacity is at 20.3 million tonne, which brings the total to 28 million tonne.
Speaking to CNBC-TV18, Banka said that demand is estimated to be around 23.8-24 million tonne. “This gives us a closing stock of 4 million tonne.”
He also said that the prices of the sweetener at Rs 3,700 per quintal is reasonable as the prices had dropped by Rs 200 per quintal post demonetisation.
The fourth quarter is considered to be a good quarter for the sugar companies and Banka has revised crushing estimate for Dwarikesh Sugar Industries upwards to 250 lakh quintal of sugarcane.
He also said that the company’s recovery trend has been reasonable.
Giving his insight on the impact of fall in sugar production on the price of the commodity and industry, M Manickam, Vice-Chairman of Sakthi Sugars said that India should start looking into importing sugar.
He said that there is a possibilty that sugar production will come down to 19 million tonne as against ISMA estimate of 20 million tonne.
"In last 2-3 years we have been selling much below the cost of production and the farmers were not paid on time. So, there was lot of disincentives for the farmer to plant sugarcane." And, drought in Maharashtra and Tamil Nadu made things worse.
Below is the verbatim transcript of M Manickam\\'s interview to Reema Tendulkar and Nigel D'Souza on CNBC-TV18.
Nigel: Earlier it was estimated that we should see sugar production at around 21.5 million tonne approximately. Now the estimate is closer towards 20 million tonne. What is your sense of the situation, what kind of impact can we see on prices and how long can this honeymoon period last for the sugar industry?
A: We have been talking about stresses under the sugar industry. Last two-three years we have been selling much below our cost of production so we haven’t paid the farmers on time. So there was a lot of disincentive for the farmers to plant the cane.
On top of that last year we had a drought in Maharashtra, which has termed as the worst in 100 years and this year we have had drought in the south which is probably the worse in the 140 years, the planting has gone down drastically. So our production has come down, so the estimates if you look at it every month it is coming down. Originally we have started at 230 and then we came down to 220 to 210 now we are at 200. So I will not be surprised if we close the year with about 190. There is a possibility, we will have to wait and see what happens by end of March because most of the estimates are not very clear until how many factories are operating. So if you are looking at that, we are tight on sugar at this point of time.
Reema: You are saying that the actual production for sugar year SY17 could be closer to 19 million tonne versus ISMA’s forecast of 20.3?
A: It could be between 19 and 20. That is what I think. So realistically speaking that is a pessimistic view or a realistic view, whichever way you want to look at it -- it could be between 19 and 20, so we are looking at fairly a tight situation for sugar in the next year.
Reema: Considering that we are just at the onset of summer demand, Holi is around the corner, what will this mean for sugar prices? If you could tell us the trend that you foresee and currently what are the ex-mill as well as retail prices?
A: Today the ex-mill is around 38-39. Government has been giving a lot of warnings and pushing the mills to sell the stock. So the price is around Rs 38-39.
We are talking about shortage and if we want to start importing sugar, the imported sugar will be coming in Rs 41-42. So if we are looking at imported sugar then we need to allow the prices to go up to Rs 42. So it will be rangebound between Rs 39 and Rs 43. That is where we will probably have the sugar prices going forward.
Nigel: I was looking at sugar prices and in Tamil Nadu, prices have gone from around Rs 3,300 a quintal to around Rs 3,700-3,800 per quintal whereas in the north, it has not moved that much. Why suddenly such a big spurt in Tamil Nadu sugar prices. Also I was reading a couple of articles, international sugar prices have not moved much in the last five-six months, so what is going on that front?
A: International sugar is fairly well supplied. So we don’t see a major deficit in international market except for what is happening in India. So that is why international prices are waiting and they are waiting to see if India will import. That is the first point.
As far as Tamil Nadu is concerned, we had produced a peak of about 2.5 million tonne and this year we are likely to produce only about 1-1.1 million tonne. So we are operating at 40 percent of capacity. So the demand for sugar is high and we are not producing enough. That is why you are seeing the prices higher in south versus north.
Reema: Let me come back to the point that you were making on import. With production dwindling, the carry forward for next year is also substantially lower than what we have had in the past. The carry forward is now closer to 45 days and in the past we have had a carry forward which could have lasted us for close to about 90 days. Do you think we will have to resort to importing sugar?
A: My personal opinion is that we should start looking at importing sugar because we have never had opening stock of half a million or one million kind of stock and I think the worst that we had previous year was 3.5 to 3.6 million tonne. So we would need to import something to have healthy opening stock. People are feeling that next year we might have a jump in production and so we may not need to import but I am not very sure if that jump will happen because the tradition is that it doesn’t jump that fast. So we will have a deficit in one more year before we go to surplus.
Nigel: What about the debt in your books? You have been gradually reducing it, what is the current debt in your books, what was it and what should it be in the next one year or so because the sugar space is bracing itself for a pretty good couple of years at least?
A: Our debt is coming down but what we are worried about is the drought because most of our cane is down. In fact Tamil Nadu -- the current year we crushed about 17 lakh tonne, next year that is coming down to about 7 lakh tonne for our factory. So we are basically dropping huge on the quantity crushed so the prices are not going to do as much unless some inputs come in. So we have to wait and watch what happens but we are looking at cutting down debt by various methods. We are looking at probably bringing it down to about Rs 400-500 crore in the next two years.