Ex-mill domestic prices of sugar have dipped over the last few days in Maharashtra raising concerns for the industry. Saturation in terms of exports and the entry of unaccounted-for sugar in the market, many industry insiders say, are the causes of the prices hovering at Rs 3,100-3,150/quintal in the state with little or no headroom for growth.
The 2022-23 cane crushing season had started on a buoyant note with domestic ex-mill prices being at Rs 3,300-3,400/quintal. International prices of raw sugar were above the psychological barrier of 20 cents/pounds (roughly Rs 3,500-3.550/quintal). This season, the Centre reintroduced the mill-based quota system for the export of 60 lakh tonnes of sugar.
To date, 55 lakh tonnes of sugar have been contracted by sugar mills. This includes 14 lakh tonnes of export quota from the mills in Uttar Pradesh, which was swapped by mills in Karnataka and Maharashtra.
However, ex-mill domestic prices have since then dropped to the Rs 3,100-3,150 range. Mills in Maharashtra say this dip was unexpected and may be indicative of the introduction of unaccounted-for sugar in the system.
Mills passing off C molasses (the end by-product of the processing in the sugar factory) as B-heavy molasses (contains around 40 per cent of sugar content that is fermented by yeast during the ethanol conversion process) for the production of ethanol. Production of ethanol from B-heavy molasses results in lower sugar production as compared to that being produced from C molasses. An insider said without excess sugar being added to the markets, ex-mill prices will not dampen.
Another reason for the price drop is the saturation of the export markets. Mills have executed contracts for 55 lakh tonnes of exports but till the end of December, only about 14 lakh tonnes of sugar has been shipped out. Till March another 41 lakh tonnes of sugar have to be shipped out which would mean around 15 lakh tonnes to be shipped out per month.
The logistic backlog which has plagued the export markets, although being smoothened out, will prove to be challenging for the industry. Given the exhaustion of the export, avenues prices are not expected to increase till March.
The reintroduction of the mill-wise quota system has not gone down well with the Maharashtra industry. Sanjay Khatal, managing director of the Maharashtra State Cooperative Sugar Factories Federation, said they have demanded an additional quota of 20 lakh tonnes for exports. “Also the reintroduction of the mill-wise quota system has surprised us. While the commerce ministry talks about the unrestricted movement of goods for exports, the food ministry puts impediments with quotas” he said.
