Mumbai: Driven by a recovery in cane availability in Maharashtra and north Karnataka supported by monsoons and an expected increase in sugar production in Uttar Pradesh to new high of around 9.7 million metric tonnes (MT), domestic sugar production is likely to increase by 18-20% to around 24-24.5 million MT in sugar year (SY) 2018 (October-September), according to ratings firm ICRA Ltd.

ICRA estimates SY2017 to end with a stock between 4-4.5 million MT, which is expected to be sufficient for around two months of domestic consumption despite the possibility of a localised sugar deficit condition in the southern and western states during the forthcoming festival season.

Sabyasachi Majumdar, senior vice president and group head, ICRA Ratings said, “Low closing stock levels of sugar in the domestic market are likely to support the sugar prices in the near term. While the sugar prices are likely to remain firm, increase in cane prices is likely to result in some moderation in margins from Q3 FY2018 onwards. This apart, overall the debt levels for most UP players have come down in SY2017 and the trend is likely to continue in SY2018."

According to ICRA, UP-based mills are likely to be benefit from healthy sugar prices along with continued healthy volumes and recovery rates, although that impact could be partly offset by higher cane prices. Mills in Maharashtra and north Karnataka are expected to be negatively impacted by higher costs and reap benefits of higher production.

However, the rating agency said performance of South-based sugar mills will be low due to cane shortage in FY2018. ICRA said that consecutive seasons of poor rainfall will hurt sugar production in south Karnataka and Tamil Nadu while increase in the cane costs due to higher fair and remunerative price (FRP) in SY2018 is likely to negatively impact the performance of the sugar mills located in the regions.

“While the shortage in the West is likely to be mitigated by early commencement of cane crushing, the deficit in the South is largely likely to be handled by way of imports from West and North India," Majumdar added.