Sugar consumption gets to Pre-Covid level as hotels and restaurants open up

Demand has emerged from cold drink and ice creams makers that seek to fill pipeline inventory which got diminished during the lockdown due to factory closure and freight disruptions

Source: Business Standard |18 June, 2020 | 11:24 AM

Firm trend continued in sugar market on Wednesday. Sugar prices at spot and mill level gained further by Rs. 10-20 a quintal on higher demand and volumes. Sugar crushing season is almost over with a sharp drop in sugar production this year. Morale was firm, said sources.

Despite demand destruction during the nationwide lockdown, sugar consumption in India is back to the pre-Covid level on a sharp increase in orders from cold drink and ice cream makers, who seek to fill their pipeline inventory and also meet their daily consumption.

The restoration in demand has come despite closure of roadside tea stalls and partial shutdown of sweet shop. Demand has emerged from cold drink and ice creams makers that are also seeking to fill pipeline inventory which got diminished during the lockdown due to factory closure and freight disruptions.

The resurgence in demand has proved a major relief for sugar mills, which were struggling to pay cane dues to farmers. With the minimum selling price (MSP) of sugar fixed at Rs 31 a kg, which was at least 10 per cent lower than the cost of production, mills were focusing on offloading inventory to keep the ball rolling. Hotel, restaurants and catering segments (Horeca) contribute 20-25 per cent of India’s overall sugar consumption.

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“With the rules under lockdown getting relaxed, demand for sugar has started picking up from beginning of May, and now has reached the pre-Covid level. Now that the country is entering the unlocking phase, and restaurants and malls are also being allowed to open, demand for sugar will further rise and mills will be able to sell the entire quantity allocated in June,” said Abinash Verma, Director General, Indian Sugar Mills Association (ISMA).

Until February, sugar mills were able to sell around one million tonnes of additional quantity this year which got nullified due to demand destruction during the lockdown. Now sugar sale quantity equals that of last year.

Mills in north India sold sugar as per their monthly quotas given for May, but west and south Indian states have a small quantity of unsold quota of May. The government has extended the sale time of May quota and has released 1.85 million tonnes of monthly quota for June 2020. Analysts believe that sugar mills will be able to sell their entire quota and a marginal carry over quota from May by the end of this month.

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“With demand picking up, and an expected increase in demand to refill the pipeline, which will come sooner or later, the sugar sales in 2019 – 20 sugar season (October 2019 – September 2020) may be at 25-25.5 million tonnes, almost similar to that of last year,” said Verma.

Sugar business contributes nearly 81 of mills’ topline while distillation (ethanol related) and co-generation (electricity) share 12 per cent and 7 per cent in their overall annual turnover.

“Mills in Uttar Pradesh are sitting on high inventory due to bumper sugar production this year. Resumption in demand would help mills there offload a portion of inventory,” said Vijay Banka, managing director, Dwarikesh Sugar Industries Ltd.

Total sugar production in India is reported at 26.82 million tonnes, around 6 million tonnes lower than 32.75 million tonnes reported last year. Jaggery and khandsari mills in Uttar Pradesh declared closure for the season early this year due to nationwide lockdown, cane availability for sugar mills remained higher this year over and above the usual bumper production. Sugar production in Uttar Pradesh is estimated at 12.55 million tonnes this year compared to 11.78 million tonnes last year. Sugar output in Maharashtra is estimated at 6.1 million tonnes this year as against 10.72 million tonnes last year.

Isma estimates closing balance between 9.5-10 million tonnes tonnes which may be higher at around 11.5 million tonnes at the end of current season.

 Sugar mills were able to forge export contracts with overseas companies to the tune of 3,5 million tonnes of the total quota allocated of 6 million tonnes for the current season.

 On Tuesday evening, 19-20 mills offered tenders and sold about 64,000-65,000 bags at Rs. 3,110-3,190 for S-grade and Rs. 3,200-3,270 for M-grade.

The Bombay Sugar Merchants Association spot rates (Rs./quintal): S-grade 3,290-3,362 and M-grade 3,330-3,552. Naka delivery rates(Rs./quintal): S-grade 3,260-3,280 and M-grade 3,300-3,370.