Domestic sugar industry to remain in surplus in SY12: ICRA

ICRA sees Uttar Pradesh based mills to be impacted by significant increase in cane costs, while outlook remain stable for west & south based mills for SY 2011-12

The domestic sugar industry is likely to remain in surplus with the sugar output likely to outstrip domestic consumption for the second consecutive year. During SY 2011-12[1], sugar output is likely to be around 25.5-26 million MT (a 6-7% growth over the previous year) which is likely to outstrip domestic consumption (expected at around 23 million MT) by 3 million MT. However, the impact of this surplus is likely to be mitigated by exports. The GoI has already permitted exports of 3.0 million MT and ICRA believes that this volume of exports is feasible notwithstanding the softening international prices. Thus, sugar stocks are likely to remain stable at about 6 million MT or 3 months domestic consumption.

The domestic free sugar prices have remained subdued and range bound between Rs. 27,000-Rs. 30,000/MT[2] for the last 18 months mainly because of domestic sugar surpluses. Given the domestic surplus and falling international price trends which are likely to restrict export volumes (beyond the 2.5 mn MT as envisaged by ICRA), ICRA does not expect any significant change in the price trends that the domestic sugar industry has seen in the last 18 months at least for the next couple of quarters. In the medium-term, the sugar price trends will continue to be determined by the following three factors. Firstly, expectations on domestic sugar production for the coming season (SY2012-13), which will start becoming clearer by end April 2012 by which time the cane acreage for the coming season will be known. Secondly, the international crude oil prices, which will determine the raw sugar: ethanol mix in Brazil, the world

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