Magnum has come out with its report on sugar sector. According to the research firm the sugar year 2012-13 seems to be negative for sugar industry as costs of sugar production in the year will be higher than 2012 due to increase in sugarcane costs by 16%-17% over the last season.

States contribution in total production: Indian Sugar Industry generates power for its own requirement and even gets surplus power for export to the grid based on byproduct bagasse. There are even production of ethanol, an ecology friendly and renewable energy for blending with petrol. Sugar Companies have been established in large sugarcane growing states like Uttar Pradesh, Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh and these six states contributing more than 85% of total sugar production in the India while, over 60% of total production is together contributed by Uttar Pradesh and Maharashtra. Indian sugar industry has been growing horizontally with large number of small sized sugar plants set up throughout India as opposed to the consolidation of capacity in the rest of the important sugar producing countries and sellers of sugar, where there is greater concentration on larger capacity of sugar plants.

Till December 31, 2012, the country has crushed more than 83 million tonness of sugarcane to produce 7.96 million tonness of sugar with 496 mills operations. This sugar production is about 2.5% higher than last year. However, about 12 more of mills were operational during the corresponding period last year. Of total, Uttar Pradesh has produced 1.93 million tonness of sugar, at 8.74% recovery. The sugar production is about 11% less than the last year sugar production during this period but with same recovery. While, Maharashtra has produced 2.01 million tonness of sugar which is about 4% higher than last year; this is due to early starting of sugarcane crushing season with better operational utilization of started sugar mills.

Meanwhile, Karnataka has produced 1.55 million tonness of sugar which is about 17% higher than last year, with same numbers of 56 operational sugar mills as that of last year. While Tamil Nadu has produced 0.3 million tonness of sugar with 38 operational mills, which is same as that of last year and Andhra Pradesh with 33 operational sugar mills has produced 0.33 million tonness of sugar which is about 12% higher than the last year during this period.

Although, the usual annual sugar consumption is around 21.5 million tonness to 22 million tonness, Indian sugar consumption is set to rise in 2012-13 to 26.5 million tonness, about 15.22 per cent higher than in 2011-12, on improved domestic supplies and strong demand from bulk consumers. Prospects of growth in the Indian economy, and a growing population (about 1.8 percent per annum) would support growth in sugar consumption. Bulk consumers such as soft drink manufacturers, bakeries, confectionary, hotel and restaurant consumers account for 60 percent of milled sugar demand. Most bulk consumers only use cane sugar as India does not produce high fructose corn syrup (HFCS) in significant quantities.

In the recent 2012-13 Union Budget announcement, the Government of India (GOI) reduced the import duty on corn syrup from 30 percent to 20 percent for fiscal year 2012-13. Lowering the import duty will encourage imports of HFCS for commercial use. Local sweet shops consume most of India’s Khandsari sugar. Gur is mostly consumed in rural areas for household consumption and feed use. Further, by, 2020-21, sugar consumption in India is forecasted to rise to 31.3 million tons, by Indian Sugar Mills Association (ISMA).

The sugar year 2012-13 seems to be negative for sugar industry as costs of sugar production in the year will be higher than 2012 due to increase in sugarcane costs by 16%-17% over the last season. Also, particularly for mills based in Karnataka and Maharashtra, a decline in sugarcane availability from unfavourable climatic conditions would result in lower capacity use, thus lower fixed cost absorption in 2013 than in the previous year. In Uttar Pradesh (UP), cane acreage for 2013 will be higher than that in 2012, resulting in better capacity use and thus better cost absorptions. A rise in the cost of sugar production and subsequent decline in sugar margins will result in lower operating margins for sugar mills across the country.

Meanwhile, domestic sugar prices are likely to remain stable in 2013 as domestic sugar will be more than sufficient to meet internal consumption. With 2013 closing stocks likely to be maintained at prior year levels, sugar would also be available for exports, subject to global attractiveness of domestically produced sugar. At the same time, comfortable global sugar demand supply balance will result in weak international sugar prices. World sugar production in 2013 will be 19% higher than the prior year. Thus, the world sugar market may be in a surplus for the third consecutive year. This will lead to a further build-up of closing stocks, bringing it closer to the levels seen in 2007, but still below the high levels seen in 2002-2004 and 2008.

However, significant underproduction compared with the expected levels for 2013 may rapidly change the current surplus scenario to one of sugar deficit. In that event, sugar prices may surge resulting in higher margins and improved credit profile of sugar companies. Moreover, implementation of Rangarajan Committee’s recommendations will benefit sugar mill profits and be a positive for the sector. However, this is unlikely to be implemented in the short term.

Owing to both global and domestic factors, the year 2012 tossed up many challenges for the Indian economy. Although internally, the Indian economy witnessed across the board slowdown in 2012, including slowing industrial sector growth mainly manufacturing and mining, which are labour intensive sectors and vital for the growth of other inter-related sectors. To be more specific, the first two quarters, GDP growth of 2012 turned down to multi-year lows, with a growth rate of 5.5% and 5.3% respectively which followed the similar downward trend of 2011. Inflation remained persistently high above the comfort zone of policy-makers throughout the year. Another worrying factor was the widening trade deficit number and poor investment environment. Apart from domestic demand and private investment, export growth also declined sharply for the first three quarters of the current fiscal, which is expected to remain sluggish for the time being with a slow recovery of the world economy. Taking a view of the above highlights, year 2013 too is expected to remain a difficult one for the economy, resting at the disposal of the policy makers to pull the economy out of the doldrums.

source: moneycontrol

This is not a company blog or website. The views and statements expressed in this blog are absolutely subjective. All content here is either copyrighted or by the mentioned news sources.

Privacy Policy | Contact Us