Domestic and Global Overview of sugar prices
The current sugar season is difficult for sugar mills. International raw sugar prices have decreased by 21% since the end of September. One factor adding to some pricing pressure is the Brazilian Real’s dramatic fall against the dollar, while another is healthier than anticipated output in important producing countries like Brazil and Thailand. Brazil is a major exporter of sugar, thus exporters will profit from a depreciating real.

Since exports have not yet been permitted, weak worldwide prices may put pressure on domestic producers’ realizations. However, depending on trade limitations, domestic prices are somewhat impacted by global price movements. Whether or not Indian sugar mills will be permitted to export during the current sugar season is still a major concern. The production of sugar for domestic use and ethanol diversion have been the government’s top priorities.

Impact of Ethanol Diversion on production
Cane crushing statistics as of December 31 were recently issued by the sugar industry group ISMA, and it showed a dramatic 16 percent decline as a result of rains impacting crushing in Uttar Pradesh. The season, which begins in October and concludes in September, is still in its early stages. A more precise estimate will be ready in March or April. The post-diversion amount for ethanol is currently 9.5 million tons. In a later statement, ISMA noted that ex-mill prices are less than the cost of production and that the government plans to evaluate the minimum selling price for sugar. Additionally, it stated that arrears for cane purchased during the current sugar season had accumulated to a total of Rs 6500 crore.

This situation is not new as noted by India Ratings about the state of the industry. Due to decreased recovery rates brought on by weather-related events and the red rod infestation in Uttar Pradesh, it is anticipated that this season’s sugar output will drop to 30-31 million tonnes from 34 million tonnes the year before. It will be the lowest sugar production since the 2020 sugar season if that occurs.

Sugar production predicted to fall
After the diversion of sugar for ethanol, production may fall slightly short of demand but there are ample opening stocks of sugar to take care of demand. The one thing that remains to be monitored on the cost front is the UP State Advised Price that is not out yet, which UP-based mills will need to pay to farmers. Lower output should ordinarily translate to higher domestic sugar prices and support profitability. If we look at government data on wholesale sugar prices, then they are up by only 0.2 percent over a year ago and up by 0.4 percent over three months ago. That looks hardly conducive for mills to raise prices. The government, of course, will be happy with that market situation as it wants to keep inflation under check. Since the government wants to control inflation, it will naturally be pleased with that market condition.

Sugar Mills’ Earnings from Ethanol
The next question is how much money sugar mills make from ethanol. The government halted ethanol diversion during the previous sugar season because it was concerned that it would limit the supply of sugar and cause prices to rise. The political sensitivity of such an event was increased by general elections. Although the regulations governing sugar diversion have been loosened, the India Ratings report indicates that during the current ethanol season, oil marketing corporations will mostly purchase maize as a feedstock for ethanol.

Indian Sugar stocks shoot up
In Thursday’s (January 16, 2025) trading, the majority of sugar stocks surged up to 8.1% as reports indicated the Indian government would likely decide soon to raise the minimum support price (MSP) of sugar. The price at which the government promises to purchase specific crops from farmers in order to guarantee that they receive a minimum price for their produce is known as the MSP. Its goal is to shield farmers from market price swings.

In terms of the BSE, Dhampur Sugar Mills, Dwarikesh Sugar, Dalmia Bharat Sugar and Industries, Shree Renuka Sugars, Bajaj Hindusthan Sugar, and Mawana Sugars all had increases of 5.9, 4.68, 4.14, and 3.46 percent, respectively.