Domestic sugar prices are likely to remain firm in the near term, ICRA has said. The sugar prices have increased from around R34,000 per tonne in June 2016 to R35,000 per tonne in July 2016 on the back of a decline in domestic production during SY2016 by 11% to 252 lakh tonne and exports of 16 lakh tonne.
Sabyasachi Majumdar, Senior Vice President, ICRA said, “We expect sugar prices to remain firm for the next 3-4 quarters given that the sugar production is likely to decline further to 230-240 lakh tonne in SY2017 because of a decline in the availability of cane in Maharashtra and Karnataka. Although the monsoon is likely to be better during the current year, the impact on the output is to be seen only in SY2018, given the growing period of sugarcane.”
“The imposition of a 20% export duty by the government is unlikely to have any significant negative impact on the prices and profitability of the sugar mills in the near term. Currently, domestic sugar realisations are already high as compared to the current export realisations, even without the impact of the export duty, thus it is unlikely that domestic sugar mills would have been exporting any significant quantities of sugar even without this additional duty,” he said.
“However, this imposition may dampen prospects of a further price rise, first by discouraging additional exports (which can result in price rise in a tight market scenario) and second by demonstrating the government’s intent to restrain price rise,” Majumdar explained.
In the next three to four quarters, any significant deviation from the current levels would depend upon expectations for sugar production during SY2017, sugar mills’ own actions on supplies depending upon their inventory-holding capacity, and any further government action on price control measures, the ICRA report stated.