Sugar mills grappling with low demand, high inventory

The Covid pandemic is predicted to exert strain on sugar mills’ gain due to sharp tumble in industrial use of sugar, tumble in exports and lower desire for sugar derivative ethanol.

The operating gain of 26 Crisil-rated companies with cumulative credit card debt of ₹11,000 crore is predicted to tumble by 150-300 basis points this fiscal.

Drop in desire

The desire from foods producing models this sort of as comfortable drinks, candies, confectionery, bakeries, hotels, places to eat and cafes, which with each other account for eighteen million tonne of the once-a-year desire of 26 mt, have dried up due to the lockdown.

Pursuing this, over-all domestic desire is predicted to be lower by 1.five-2 mt in the present sugar season, as reflected in softening price ranges more than the past few months.

Also, oil promoting companies would cut down ethanol off-get due to lower desire for gasoline amid Covid lockdown. Other than, they have restricted storage potential obtainable. Generation of potable liquor from ethanol would also be impacted due to lower desire from distillers.

Worldwide price tumble

International sugar price ranges have fallen 23 per cent in between January and April as significant provider-nations, which includes Brazil, are switching from ethanol to sugar due to reduced crude oil price ranges.

Consequently, exports from India are probable to keep on being flattish in contrast with a 25-30 per cent advancement predicted before.

Notwithstanding the complicated marketplace ailment, the sugar season (commenced final October) with large opening stock of 14.five mt. Despite 20 per cent lower output, the closing stock is probable to be large at about 14 mt, equal to six months’ intake.

Gautam Shahi, Director, Crisil Scores, claimed sugar millers can assume an operating gain of 7.five-9.five per cent in the present fiscal towards 9-12.five per cent in final fiscal.”

The saving grace for domestic sugar mills is the least selling price of ₹31 per kg mounted by the government.