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Southern sugar mills operating at 25% capacity due to chronic cane shortage

Southern sugar mills operating at 25% capacity due to chronic cane shortage
January 10
01:27 2018

Even as sugar output in India is expected to rise 25 per cent this year, sugar mills in the south are reeling under low production and extremely low cane crushing capacity utilisation.

While drought has resulted in low capacity utilisation due to lower cane availability, the mills are also having to deal with increasing fixed cost and price falls, which are impacting their financials.

According to Indian Sugar Mills Association (ISMA) data, 21 sugar mills in Andhra Pradesh and Telangana produced 190,000 tonnes of sugar till December 31, 2017, which is 16,000 tonnes lower than the sugar produced by 25 mills in 2016-17 SS (sugar season) till December 31, 2016. Sugar season is October to September.

In Tamil Nadu, 20 sugar mills are in operation, down from 34 on December 31, last year. Sugar mills in Tamil Nadu produced 170,000 tonnes of till December 31, 2017 as against 186,000 produced a year ago on the corresponding date.

A Vellayan, executive chairman, Murugappa Group, which owns EID Parry, said because Tamil Nadu was impacted due to three years of drought, this year his company will see the lowest crop ever.

“Forty per cent of our volume comes from Tamil Nadu, the rest from Karnataka and Andhra Pradesh. Fortunately we have moved to other states that are in better shape. We are going to see a balanced situation this time. We will be better off compared to those who are depend only on Tamil Nadu,” said Vellayan.

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N Ramanathan, MD, Ponni Sugars said cane volumes for all players in Tamil Nadu have been consistently coming down year after year. So lower sugar recovery has strained earnings. He added. cost of production increased to Rs 50 a kg, at 20-25 per cent capacity utilisation, from Rs 30-36 a kg, when the capacity utilisation was around 95-100 per cent.

This cost is much more than prevailing market price.

Sugar production capacity of Tamil Nadu mills is close to three million tonnes.

Area under cultivation has been shrinking, quality has started deterating, and sugar content in cane is drying up. As a result, from a peak of 2.55 million tonnes produced 4-5 years ago, production last year dropped to around 1.2 million tonnes, and this season the output will be around 600,000 tonnes, which is hardly 25 per cent of the capacity during teh October-September period, he added.

On pricing, Ramanathan said, prices have dropped by Rs 4 ex-factory, since sugar is likely to be in excess production next year across the country.

“The all-India production is quite high, and demand and supply is balance. Next year, production is expected to be surplus at the all-India level, which puts pressure on the cost. Prices are down by Rs 4 a kg ex factory. Every rupee earned or lost translates into a huge sum for sugar companies–between Rs 40-50 million in revenue for sugar mills,” he said.

Vellayan said, next year crop will also be at the same level or marginally higher. Consumption and production are more evenly matched. Prices will remain stable at this level at around Rs 33-34.

This season average price will be around Rs 30-36, if the Government intervenes or it will be Rs 32-33 a kg, says industry representatives.

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