With global prices of sugar firming up, the outlook on the entire sector has vastly changed, putting India in an advantageous position. Raw sugar prices have moved above 28 cents per pound and white sugar, above US $ 708 per MT. With drought in Brazil and floods in Pakistan, the global supply is expected to remain lower. With demand picking up from Russia, China, Pakistan, Sri Lanka and other neighboring countries and with surplus production expected in the country in season 2010-11, India will be able to take advantage of this, by exporting sugar to its neighboring countries.
On import parity price, cost of sugar works out at Rs. 35.50 per kg.in India while it is sold at Rs.25 per kg. ex-mill in Maharashtra and Tamil Nadu and at Rs.26.50 per kg. ex-mill in U.P. Even if we take price of sugar ex-London, it works out at Rs. 32 per kg. against average domestic price of Rs. 26 per kg. So, in due course of time, this gap is likely to get bridged with domestic prices of sugar likely to move to around Rs. 30 per kg. ex-mill by December- January. This amounts to an increase of about Rs. 4 per kg., which is seen quite respectable by the industry.
Going forward, Indian sugar mills are likely to have following advantages: –
1. India’s production for sugar season 10-11 is expected to be about 25 million tons against estimated domestic consumption of 23 million tons. So, about 1 to 1.5 million tons of sugar can easily get exported, thus giving a better realization.
2. Levy quota this year is likely to be 10% as against 20% last year. This will result in an extra realization of about Rs. 2.50 per kg. on the entire quantity of sugar produced by a mill. This is after considering difference between levy price of Rs.18 per kg. and open market price of Rs. 26 per kg. of sugar.
3. Ethanol price having been fixed at Rs. 27 per litre will also be a good revenue generation for the mills with expectations of oil marketing companies lifting the entire quantity of ethanol allotted to them.
4. Sugarcane prices are likely to rule between Rs.180 per quintal to Rs.220 per quintal in U.P. and Karnataka while Tamil Nadu is likely to have price ruling at around Rs.200 per quintal. This kind of price will give a conversion margin of about Rs.7 per kg. to the mills, which is seen quite reasonable.
5. With inventory of sugar depleting at the industrial consumers and traders levels, fresh demand of sugar is seen coming up, which will remain alive throughout the season.
6. At the farmer levels, realization of Rs. 180 to Rs. 200 per quintal for sugarcane seems quite good as alternate crops would still fetch much lower price. This is likely to keep better availability of cane even in the next season of 2011-12.
7. Sugar mills having integrated operations will have better realization from its by-products – molasses and bagasse – by processing them into ethanol and power respectively.