Sugar production is likely to decline by 19 percent to 20.3 million tonne during sugar year (SY) 2017, due to poor rainfall during previous monsoon seasons in key producing states, ICRA today said in a report.
ICRA estimates domestic sugar production to decline by around 19 percent to 20.3 million tonne during SY2017, beginning from October 1, when compared to SY2016, driven by a significant decline in sugar production in key sugar-producing states – Maharashtra and Karnataka due to poor rainfall during previous monsoon seasons.
During SY2017, ICRA said, domestic sugar consumption is expected to decline by 4 percent to around 24.0 million tonne compared to SY2016.
"Despite a decline in the domestic sugar production, we project the closing sugar stocks at 4–4.5 million tonne at the end of SY2017 season, which would be sufficient to meet the requirement of around two months of consumption," said ICRA Ratings Senior Vice President and Group Head Sabyasachi Majumdar.
"While this is lower than the normal stock requirement of three months, the levels of sugar stocks will largely limit dependence on imports during SY2017," added Majumdar.
ICRA opined that, sugar prices are likely to remain firm in the next 2-3 quarters, due to tight stock position in the domestic and global markets.
This is likely to augur well in terms of profitability of the UP-based sugar mills, it said.
However, the western and southern sugar mills will continue to be impacted by decline in the cane crushing volumes for most of these units.
While the sugar prices declined marginally during November–December 2016, following demonetisation, sugar prices have recovered to around Rs 37,000 per tonne in January–March 2017, due to the tight sugar stock situation.
Although, ICRA anticipates a 3-4 percent decline in domestic sugar consumption during the SY2017, this is unlikely to affect sugar prices, as the impact of the decline in the domestic consumption might be more than offset by a higher-than-expected decline in sugar production.
"Sustained healthy realisations, higher cane crushing volumes and higher recovery rates for SY2017 season are likely to support the profitability for UP-based sugar mills despite an increase in the cane price by Rs 25 per quintal. The profitability of the western and southern-based sugar mills continues to be affected by the crushing volumes," said Majumdar.
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