The domestic sugar mills have contracted close to 4.2 million tonne for exports during 7M SY2020 (until April 2020). Icra expects the exports to be around 5 million tonne given the demand from Indonesia and Iran.
The pan-India lockdown for two months has adversely impacted the sugar demand, resulting in the sugar mills being unable to fulfil their monthly sales quota allocated by the government. This along with the highest ever cane crushing in Uttar Pradesh is likely to increase working capital requirements of the mills. With the relaxation in Covid-19 lockdown rules, the domestic demand is likely to pick up and the exports are likely to normalise from June 2020.
With the relaxation in the lockdown rules, exports are likely to normalise from next month and the domestic demand is also likely to pick up to an extent. This could support in liquidation of sugar stocks to some extent.
But, the adverse impact on demand due to the closure of restaurants and restrictions on large gathering celebrations continue, said Icra on Friday.
The domestic sugar mills have contracted close to 4.2 million tonne for exports during 7M SY2020 (until April 2020). Icra expects the exports to be around 5 million tonne given the demand from Indonesia and Iran. “However, with most countries under lockdown globally, the demand has declined resulting in a fall of the global sugar prices. The mills exporting sugar are likely to gain on rupee depreciation to an extent,” said Sabyasachi Majumdar, senior vice-president & group head, Icra Rating.
“We expect the working capital requirements of sugar mills to increase given the demand squeeze in April-May 2020, owing to the lockdown and also the increase in the sugar production in Uttar Pradesh (UP). The state is set to record highest ever sugar production in SY2020 of around 12.5 million tonne, 6% higher on y-o-Y basis.
This is majorly due to the cane which was generally used by the local gur and khandsari manufacturers got diverted to sugar mills with the former’s operations prematurely shut due to the lockdown. These factors resulted in the moderation of liquidity for the sugar mills, thus increasing the cane dues to farmers,” he pointed out.