Sugar Export Subsidy to Expand Operating Margins Of Sugar Mills: CRISIL

The Centre's export subsidy for the Oct-Sept sugar season 2020-21 will help sustain the commodity's exports at almost last year's level, Crisil said. Also, higher ethanol prices, stable sugar realisations and steady sale volumes are expected to rise operating profitability for mills by 100-200 bps in fiscal 2021, recouping impact of higher cane prices

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Source : IANS | 29 Dec, 2020 | 12:11 PM

The Centre’s export subsidy for the October-September sugar season 2020-21 (SS21) will help sustain the commodity’s exports at almost last year’s level, Crisil Ratings said on Monday.

Recently, the Cabinet Committee on Economic Affairs approved export subsidy of Rs 3,500 crore for up to 6 million tonne – around Rs 5.8 per kg – for SS21.

gautam shahi 1Gautam Shahi Director, Crisil Ratings said, “This subsidy together with stable domestic demand, higher contribution from ethanol due to higher cane diversion for ethanol production, and increased ethanol prices, will lead to a 100-200 basis points (bps) increase in the operating margin of sugar mills to 10.5-11.5 per cent this fiscal”

It added that the above factors will keep inventory levels for mills almost flattish, despite production increasing to 30-31 million tonne from 27 million tonne in the previous year.

“Though lower thananuj sethi the Rs 10.4 per kg subsidy announced for SS20, the current subsidy, in tandem with ruling international prices, will help domestic mills cover the cost of production, rendering exports viable,” said Anuj Sethi, Senior Director, Crisil Ratings.

Accordingly, Crisil expects export volumes in SS21 to be in the 5-5.5 million tonnes range (5.7 million tonnes in SS20), slightly below the target of 6 million tonnes, due to the smaller export window available.

“Further, a bulk of exports may need to take place by April 2021 given the likelihood of resumption of sugar exports by Brazil,” the agency said in a statement.

“In contrast, sugar exports by Indian mills last season continued until September 2020.”

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Prices of ethanol, procured by oil marketing companies, was raised 4.4-6.2% to encourage supplies for blending with fuel. Higher prices will boost cane diversion for ethanol production, thereby reducing sugar output by nearly 2 million tonne this season.

In addition, the agency expects domestic consumption in SS21 is likely to sustain at last year’s level of 25.5-26 million tonnes due to higher industrial demand, which accounts for 60 per cent of total demand – driven by increased consumption of packaged foods such as biscuits, chocolates and confectionery that contribute over 30 per cent of total industrial demand – and stable household demand.

“Demand from the hotels, restaurant and cafes, however, remains tepid with consumers exercising caution with respect to dining out,” the statement said.

Exports and stable domestic consumption, together with higher diversion of cane for ethanol production will keep inventory levels at 10.5-11.0 million tonne at the close of current season, almost unchanged from 10.7 million tonne seen in September 2019.

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