Sugar production to increase by 12 per cent in SY21: ICRA

The domestic sugar production is likely to increase by 12.1 per cent to 30.5 million tonnes in SY21 after adjusting for the impact of diversion of B-heavy molasses and sugarcane juice for ethanol manufacture, according to investment information firm ICRA.

The closing stocks for SY20 at 11 million to 11.5 million tonnes after considering the consumption of 25 million tonnes (decline of 3.8 per cent year-on-year) and exports of 5 million to 5.5 million tonnes. This along with higher sugar production for SY21 is likely to result in domestic sugar availability of around 42 million tonnes.

In light of continuing sugar surplus scenario in the domestic market, continued government support will be critical for industry's profitability.

"This increase in production is majorly driven by the increase in cane availability in Maharashtra and Karnataka in SY21," said Sabyasachi Majumdar, Senior Vice President and Group Head at ICRA Ratings.

The domestic sugar consumption was adversely impacted by the nationwide lockdown owing to COVID-19 pandemic due to loss of demand on account either closure or limited operations of several beverage and food manufacturing units during April and May.

Without considering the impact of the diversion of B-heavy molasses and sugarcane juice for ethanol manufacture in SY21, the production is expected to be around 32 million tonnes. In Maharashtra, production is expected to increase by 64 per cent at 10.1 million tonnes and in Karnataka by 26 per cent to around 4.3 million tonnes in SY21.

In Uttar Pradesh, the production is likely to decline by 3 per cent to 12.3 million tonnes. In SY20, the production was higher by around 0.5 million to 0.6 million tonnes than anticipated, because which was generally used by the local gur and khandsari manufacturers got diverted to sugar mills with operations prematurely shut due to the lockdown.

While the exports were on lower side during lockdown period given the modest port operations due to logistics issues and labour shortage, the pace picked up in May and June. ICRA expects exports of around 5 million to 5.5 million tonnes for SY20.

Assuming the government continues support for exports for SY21, considering the surplus scenario in the domestic market, exports are likely to be similar to the SY20 figures.

The sugar prices moderated closer to mimimum support levels of Rs 31 per kg in March to May during lockdown period and then picked up to Rs 32 to 32.5 per kg in June. The pick-up in consumption and pace of sugar exports is likely to support the sugar prices in the near term.

However, given the sugar surplus scenario, any significant increase in prices is ruled out, said ICRA.

( With inputs from ANI )