Re: {LONGTERMINVESTORS} Sugar industry - discussion thread
RAJESH DESAI
Sugar prices tend to rise just before the festival season in India which starts from late August and continues till the end of the year. In anticipation of the rise, the government generally releases extra sugar in the market to control prices. This year too it did the same.Earlier this month 400,000 tonne of additional non-levy sugar was released, which is over and above the previous allocation of 4.766 million tonne. The quantity of non-levy sugar also called as free sale sugar is the quota that is given to millers by the government every quarter.
Despite this rise in supply, sugar prices have been rising from Rs 27 a kg levels in June to over Rs 34 a kg currently. Two factors have contributed to this rise. First is the lack of rain in sugarcane growing belts of Maharashtra and Karnataka. These areas have received 15 per cent lower rains than normal.
Second is the government’s policy of exports. In spite of knowing that the country has received lower rainfall, the government has continued with its policy of exports. Sugar exports were freed and put under the Open General Licence (OGL) only in May 2012. Since then the country has exported 1.35 million tonne and exports are expected to touch 3.5 million tonne for the sugar marketing year ending September.
Food Minister KV Thomas has now said that this sugar year (October to September), sugar production is expected to be 23 million tonne. This compares poorly with the Indian Sugar Mills Association’s (ISMA) forecast of production of 25 million tonne for 2012-13 and end the season at 26 million tonne.
What is worrying is that continued exports and lower production will result in a lower inventory level for the next year. This will keep prices of sugar higher with the role of monsoon being extremely critical next year. Domestic sugar prices have already risen so fast that they are now higher than international prices. Fortunately, this has prevented millers from exporting further.
But news from Brazil, the main exporter of sugar is not too encouraging either with reports of a delay in harvest. This can again push up international sugar prices, especially since the US is going through one of the worst drought in recent years. There is a sharp reduction of cane production in the US, which is used mainly to produce ethanol. In order to overcome this demand, analysts feel Brazilian sugarcane will be diverted to produce ethanol rather than sugar.
With higher international sugar prices, exports can resume once again. With domestic demand in the country at 22 million tonne and production at 23 million tonne, carry forward inventory will be very low. While the food minister does not seem to be worried over current year’s demand and has ruled out imports, he was not sure about exports for the next year.
Sugar companies will thus benefit from this quarter as realisations have shot up considerably and fundamentally there is little that can dampen prices.
However, the key element that will decide future sugar prices is the total quantity that will be exported which will decide the closing stock of the current year. If there is enough buffer, price rise will be arrested, if not the government will be staring at rising sugar prices and a possibility of imports on the eve of elections.
In any case sugar companies will have much better realisations than they have had over the last two years. Sugar company stocks have started moving over the past month in anticipation of better times, but could be bought on declines.Source: http://www.business-standard.com/india/news/outlook-sugar-industry-/183998/on
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Karishma Suvarna
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CA. Rajesh Desai
RAJESH DESAI
Production will exceed demand by 5.9 million metric tons in the year that began Oct. 1, more than the U.S. consumes in six months, the International Sugar Organization estimates. Global supply including inventories will be the highest ever, the London-based group says. Raw-sugar futures traded in New York may drop 9 percent to 18 cents a pound by the end of the year, according to the median of 15 estimates from traders and analysts compiled by Bloomberg.
Futures fell 45 percent since reaching an all-time high of 36.08 cents in February 2011 as farmers from Russia to Thailand planted more crops. The drop is moderating global food prices that the United Nations says rose 7.7 percent in the past three months as drought and heat waves wilted U.S. and European wheat, corn and soybeans. Lower prices are helping to cut costs for food companies including Nestle SA, which spent about 1.5 billion Swiss francs ($1.6 billion) last year on sugar.
“The surplus is probably getting worse,” said Jonathan Kingsman, the chief executive officer of Lausanne, Switzerland- based research company Kingsman SA who has traded sugar for more three decades. “More sugar will have to be stockpiled on lack of demand and we would expect prices to stay under pressure.”
Raw Materials
Sugar retreated 15 percent to 19.85 cents on the ICE Futures U.S. exchange in the year to yesterday, extending a 27 percent slump in 2011. The Standard & Poor’s GSCI Agriculture index of eight raw materials jumped 10 percent since the start of January and the MSCI All-Country World Index of equities advanced 11 percent. Treasuries returned 2.2 percent, a Bank of America Corp. index shows.
Production will rise 2.3 percent to a record 177.4 million tons this season as demand advances 1.9 percent to 171.5 million tons, according to the ISO, which has more than 80 member states. Output rose 19 percent in the past four years and consumption 6 percent. Supply including inventories will gain 3.7 percent to an all-time high of 240.6 million tons as imports contract 6.5 percent, the ISO says.
Brazil, the biggest grower, will produce 38.1 million tons this season, 11 percent more than a year earlier, the ISO estimates. While Russian supply will be little changed at 5.4 million tons, production is up 53 percent from two years ago, when drought decimated the country’s crop, the ISO estimates.
Soybean Yields
China, the second-biggest consumer after India, will probably limit annual imports to no more than 1 million tons through 2015, Liu Hande, vice chairman of the China Sugar Association, said in a speech in Singapore on Sept. 27. The nation bought 3.3 million tons in the past season, the ISO estimates. Domestic production will reach 14 million tons, from 11.5 million tons, boosting stockpiles to a record, Liu said.
Just as heat and drought curbed corn, wheat and soybean yields this year, so sugar output may be diminished by extreme weather. Production in India, the second-biggest grower, will probably drop almost 10 percent to 23.5 million tons this season because of lower-than-average rainfall, according to ED&F Man Commodities India Pvt., a unit of the commodities trader founded more than two centuries ago.
Sugar prices at the factory gate in India may rise 19 percent to 40 rupees a kilogram (34 cents a pound) by January, according to Narendra Murkumbi, the managing director of Shree Renuka Sugars Ltd., the country’s top refiner. While most of the cane-growing regions are irrigated, there wasn’t enough water left in the reservoirs supplying them to compensate for a below- average monsoon, according to Rabobank International.
Farmers Reap
Dry weather will probably curb production in Thailand, the second-biggest shipper, said Piromsak Sasunee, chief executive officer of Thai Sugar Trading Corp., the nation’s largest exporter. Farmers will reap as little as 92 million tons of cane this season, yielding about 9.8 million tons of sugar, he said. That compares with 98 million tons and 10.2 million tons in the past season, government data show.
More producers in Brazil may switch to ethanol as sugar prices decline, according to Abah Ofon, an agricultural analyst at Standard Chartered Plc in Singapore. The country is set to be the biggest exporter of the fuel this season and futures rose 5.4 percent to $2.369 a gallon on the Chicago Board of Trade this year.
Bullish Bets
Nestle, the maker of Smarties and Aero candy, expects to see “a little bit of lighter pressure” from raw materials in the second half, Chief Executive Officer Paul Bulcke told analysts on a conference call last month. Shares of the Vevey, Switzerland-based company rose 14 percent to 61.75 francs this year and will trade at 62.43 francs in 12 months, according to the consensus of 30 analyst estimates compiled by Bloomberg.
Hedge funds pared bullish bets on sugar by 48 percent since the start of March, U.S. Commodity Futures Trading Commission data show. They held a net 75,479 contracts in the week ended Oct. 9, compared with a five-year average of about 114,000 contracts. Open interest in raw-sugar futures contracted about 12 percent since mid-June, valuing the ICE Futures U.S. market at about $15.4 billion, bourse data compiled by Bloomberg show.
Australia, the third-biggest shipper, may produce 4.5 million tons in the year started July 1, up from 3.7 million tons a year earlier, according to the Australian government’s forecasting unit. Farmers planted more cane and hot, dry weather raised yields.
Pakistan may export 1 million tons this season after better-than-average rainfall boosted crops, according to the country’s Sugar Mills Association. That compares with sales of only 137,000 tons this year since January, the group says.
“There are mounting expectations that supply could outstrip consumption in the coming quarters,” said Michael Creed, an agribusiness economist at National Australia Bank Ltd. in Melbourne. “Inventories are set to increase.”
To contact the reporters on this story: Luzi Ann Javier in Singapore at lja...@bloomberg.net ; Pratik Parija in New Delhi at ppa...@bloomberg.net ; Supunnabul Suwannakij in Bangkok at ssuwa...@bloomberg.net .
To contact the editor responsible for this story: James Poole at jpo...@bloomberg.net.
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CA. Rajesh Desai
RAJESH DESAI
Sugar futures displayed bearish trade on NCDEX as speculators booked profits after recent gains. Fall in prices was also due to increased supplies in spot market. In the 2011-12 marketing year sugar mills had produced 26.2 million tonnes (MT) of sugar as against 24.42 MT in the previous year while the country’s annual domestic demand is 22 MT.
The contract for November delivery was trading at Rs 3302.00, down by 0.12% or Rs 4.00 from its previous closing of Rs 3306.00. The open interest of the contract stood at 37180 lots.
The contract for December delivery was trading at Rs 3272.00, down by 0.12% or Rs 4.00 from its previous closing of Rs 3276.00. The open interest of the contract stood at 16490 lots on NCDEX.--
CA. Rajesh Desai
RAJESH DESAI
Output in the world’s second-biggest producer will reach 25.53 million metric tons in the season that began Oct. 1, according to a survey of 820 farmers across an area responsible for 93 percent of national output by Geneva-based SGS SA for Bloomberg. While that’s 2.6 percent less than a year earlier, the government expects output of 23.5 million tons and the Indian Sugar Mills Association predicts 24 million tons.
The extra sweetener would expand global supply already forecast by the International Sugar Organization to reach a record this season. Producers from Russia to Thailand raised output after prices averaged the most in three decades in 2011. Futures fell 28 percent since March on prospects for a third straight annual surplus, helping to contain the surge in global food costs caused by droughts in the U.S., Europe and Australia.
“If the actual crop is going to be more than expected it’s detrimental for the world market,” said Sergey Gudoshnikov, a senior economist at the ISO in London who has studied the commodity for about three decades. “For the time being the world sugar market is still in surplus.”
Raw-sugar futures fell 19 percent to 18.95 cents a pound this year on ICE Futures U.S. in New York. Prices, which reached 36.08 cents in February 2011, the highest since 1980, may drop to 18 cents by the year-end, based on the median of 15 trader and analyst estimates compiled by Bloomberg last month. It’s this year’s third-biggest decliner in the Standard & Poor’s GSCI Spot Index of 24 commodities, behind coffee and cotton.
World Index
Sugar’s slump this year contrasts with an 11 percent gain in the S&P GSCI Agriculture Index of eight commodities, as the worst U.S. drought since 1956 parched wheat, corn and soybeans. The MSCI All-Country World Index of equities rose 8.8 percent since the start of January as Treasuries returned 2.4 percent, a Bank of America Corp. index shows.
Farmers may harvest 381.7 million tons of cane this season, 6.7 percent more than last year, according to the SGS survey from Sept. 25 to Oct. 18 across six states. About 65 percent may be crushed for sugar, according to SGS, which used the average recovery rate of 10.34 percent over about the past decade for its output estimate. The rest will be used for jaggery, a local sweetener, livestock feed and seeding.
Six Months
India’s production in the past season was forecast at 24.35 million tons by SGS last November. The Indian Sugar Mills Association’s final estimate was 26.2 million tons. A year earlier, SGS predicted output of 23.27 million tons and the producer group 25.5 million tons. The association lowered its estimate to 24.2 million tons six months later.
A slower-than-average start to the monsoon, which provides about 70 percent of India’s annual rainfall, may have hurt the crop more than indicated by the survey. Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd., the country’s top refiner, predicts production will be 23 million tons, 9.9 percent less than the SGS estimate.
A smaller-than-expected crop may spur imports. While the country didn’t buy any sweetener last year, it purchased 2.43 million tons in 2009-2010, equal to about 8 percent of global stockpiles at the end of that marketing year, U.S. Department of Agriculture data show.
Raw Imports
India will probably produce 23 million tons this year and a possible supply squeeze in December could lift imports in the the fourth quarter, Wayne Gordon, an analyst at UBS AG in New York, wrote in an Oct. 25 report. Refiners are already using a trade regulation which allows duty-free imports of raw sugar and exports of refined sweetener, Murkumbi said in October.
Rising Indian demand for imports may not be enough to halt the rout in international prices. World supply including inventories will climb 3.7 percent to 240.6 million tons in 2012-2013 and imports will decline 6.5 percent, according to the ISO. The group, which has more than 80 member states, estimates the glut at 5.9 million tons.
Hedge funds cut bullish bets on sugar by 75 percent since early August, U.S. Commodity Futures Trading Commission data show. Open interest in raw-sugar futures declined about 8.7 percent since mid-June, bourse data compiled by Bloomberg show.
Sugar had the biggest drop this year of any of five food indexes tracked by the United Nations’ Food & Agriculture Organization. The Rome-based group’s sugar gauge slumped 13 percent through the end of September even as the combined measure across 55 edible commodities advanced 2.4 percent. The index jumped 8 percent since June as drought damage spread.
Marketing Year
The decline in output from a year earlier and trade barriers mean Indian growers still expect higher returns even as global costs plunge. Farmers anticipate a 22 percent gain in average cane prices this marketing year, the SGS survey showed. Sugar futures traded in Mumbai climbed 21 percent in the past year and touched 3,672 rupees per 100 kilograms (30.7 cents a pound) in August, the highest level in more than 18 months.
“A rally in local sugar prices and expectations of better cane returns encouraged farmers to plant more,” said Mark Oulton, the market research director for SGS in Wilkes-Barre, Pennsylvania. “The crop was profitable.”
While farmers increased the amount of land planted with cane by 9.8 percent this year, yields may drop 2.8 percent, the survey showed. The delayed monsoon damaged crops and reservoirs supplying irrigation had below-average water levels. About 19 percent of the cane was in poor condition this year, from 6 percent the previous season, the survey showed.
Cane Growing
The harvest in Maharashtra, the biggest sugar-producing state, may decline 5.7 percent, with 3 percent of the crop reported to be in good condition, from 38 percent a year earlier, according to the survey. That contrasts with Uttar Pradesh, the largest grower of cane, which is expected to reap almost 13 percent more. About 34 percent of fields were in good condition, from 6 percent the previous season.
“There are no signs of the global surplus disappearing any time soon,” said Eugen Weinberg, the head of commodity research at Commerzbank AG in Frankfurt. “Supplies are very comfortable.”
To contact the reporter on this story: Pratik Parija in New Delhi at ppa...@bloomberg.net--
CA. Rajesh Desai
Rajesh Desai
SHRE RENUKA SUGAR : mgt says farmer agitation has ended, crushing has begun in Maharashtra.. avg cane cost in Maharashtra at Rs 2800-3100/tonne this yr.. Karnataka prodtn surprise due to front loaded crushing.. Maharasthra cost of prodtn to be Rs 28-30/kg.. expect higher sugar pxs post crushing..intln sugar pxs may decline post march 2013.. 2014 likely to be deficit yr for industry.. see significant sugar surplus.. cane pxing reforms unlikely to be cleared in near term
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CA. Rajesh Desai
Rajesh Desai
Sugar industry needs to get deregulated: Siddharth Shriram, Mawana Sugars
In an interview with ET Now, Siddharth Shriram, CMD, Mawana Sugars, talks about sugar decontrol and the possible impact of this measure. Excerpts:ET Now: The Indian sugar industry currently is in an appalling state. Do you think the industry is desperate to get deregulated?
Siddharth Shriram: It needs to get deregulated as it has been under control since its inception and the deregulation commissions have just sat for the last 40 years. We are hopeful that this time it will go through. There are two levels of deregulation: one is what the Central government can do, which is related to import-export levy and release mechanism. The other is what the state governments can do with respect to sugarcane. So we are constrained on sugarcane supplies, which is a state subject, and release in levy and import-export, which is a Central subject.
ET Now: The removal of levy sugar will only take care of 10% of the production, but the problem is the remaining 90%?
Siddharth Shriram: Yes, the removing of levy will raise for 10% of the sugar what drives from 60% of the value to 100% of the value. That is a benefit of Rs 3000 crore, wherein the release mechanism is done away with. Every individual mill can behave in the way they want. So if I want to dump all my sugar on one day, I can. It depends on each mill, individual appetite for sales, for holding off the sales depending on its own cash flow needs and its business needs.
Now the competition element will increase, the prices will become better for the customer. They may go up, but there will be basically good competition and the farmer is expected to benefit, on the one hand, and also realise that improving his farming methods and the cane etc., are better for him. So it will be a two-step deregulation.
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CA. Rajesh Desai
Rajesh Desai
Tulsian told CNBC-TV18, “Going by the financial performance of Shree Renuka Sugars , we have not been hearing anything on the Brazilian front that how their Brazilian sugar mills are performing because company has not been posting their consolidated numbers on a quarterly basis and that is in fact keeping us in the dark about their global operations. Secondly, they have been talking of monetising some of their assets like overseas Brazilian Cogen assets or maybe selling part of the stake because they are holding two mills in Brazil and they were looking even to exit completely from one of the assets. But nothing has been happening and this we have been hearing for last maybe 9-12 months.”
He further added, “Management has been very confident that they will be able to monetise and reduce the debt. But nothing is happening and that is keeping the domestic performance also quite dull. I don’t think that much of the hopes are seen for the sugar sector more especially when the companies are operating in states like Karnataka or maybe UP. Since this company has presence in Karnataka so definitely things are not very good going ahead for the company. So keep a level of about Rs 29-30 because since this is the only stock available in the F&O space and whenever we see the positive bias building up on the sugar sector, you will be able to see that price and there, the exit is advised.”
CA. Rajesh Desai
Rajesh Desai
Sugar
Partial decontrol-a big positive
Key points
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The government recently announced a couple of important decontrol measures that would transform the sugar industry's fortunes. The government has removed the levy quota obligation as well as abolished the monthly release mechanism. The removal of levy obligation will have a substantial impact on sugar companies' profitability as the decision would increase the blended realisation by Rs1.3/kg. The abolition of the release mechanism will facilitate the free play of market forces for the commodity and enable the mills to sell their inventory as per their cash flow requirements to pay to the farmers, especially during the crushing season. The government has also refrained from increasing the excise rate in spite of an increase in its subsidy burden. We believe the government has justly considered the interests of all stakeholders, ie farmers, consumers and the industry, by taking the onus of the subsidy burden on itself.
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Lower production estimate for the next season (by 1-2 million tonne) coupled with the end of the harvesting season (in May 2013) should enable sugar prices to scale higher grounds in the coming months. However, the weak international prices will cap the upside in the domestic prices owing to the import parity.
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Among the larger companies, we feel the efficient players should trade at par to their book values owing to the improved profitability outlook after the implementation of the decontrol measures. Thus, we continue to prefer Balrampur Chini over others as it is the most efficient player and a better company on account of its leaner balance sheet and lower dependence on the international sugar prices, which are expected to remain subdued.
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CA. Rajesh Desai
Rajesh Desai
Defiant UP mills want price set before fixing cane area
In a bold move, 100-odd cash-starved private sugar mills in Uttar Pradesh have invoked a state law and told the state government that they would rather know the cane price for the season starting October before submitting their cane requirement for the year. The mills, which are yet to pay R3,243 crore to farmers for cane purchases during 2012-13 and constrained by banks’ reluctance to extend any additional loans to them, have told the government that for the new season, they can at best pay 14% less than last year’s government-fixed price of R280 per quintal.
In July, the Allahabad High Court asked the mills to pay farmers for their cane purchases within six weeks.
In a letter to the state cane commissioner, the UP Sugar Mills Association said: “In the event of fixation of a higher cane price which the mills won’t be able to pay, they will not be liable to crush the entire cane as per the reservation order because the responsibility to run the mill and crush the entire cane does not include any undertaking to incur losses, which are clearly predictable in the event of a higher cane price.”
The mills have pointed out that as per Sections 15 & 16 of the UP Sugarcane (Regulation of Supply and Purchase) Act, 1953, the cane commissioner is to reserve or assign the area of sugarcane to the sugar industry “after having the consultation with the factory/ industry…and as per the provisions of Section 17 of the Act, the industry is to make the provision for payment of the price of cane purchased by the industry”.
Earlier, the state government had written to the mills saying that if they do not submit their cane requirement by September 6, the department will assume that they have nothing to say and fix the cane areas suo motu. The industry’s sharp riposte to the fiat is in the context of mounting losses, exacerbated by cane prices being fixed at a high R280 per quintal for 2012-13 when sugar prices ruled at R3,000 per quintal. The industry repeated its constant complaint that at this high price, their cost of production exceeded R3,600 per quintal, resulting in a collective loss of over R3,000 crore for 2012-13 alone.
To tide over the crisis, the industry asked for either a cash subsidy from the government or help to get interest-free loans. “In the process of asking of the reservation/assignment proposal, the price is an important element, which is not known to the industry,” the association said.
“It must be appreciated that the industry cannot be forced to purchase the cane or to accept the reserved/assigned area, if the running of the sugar industry is not viable. There is no provision in the law that the industry should suffer the losses," said a miller, on condition of anonymity.
The normal practice is that the government earmarks the cane area — from where the mill has to procure the cane — for each mill after factoring in details of requirements submitted. Usually the state government fixes the cane price after the reserved areas are finalised.
In recent years, hefty hikes in cane prices and low crop recoveries have been bleeding sugar mills in Uttar Pradesh compared with states like Maharashtra and Karnataka. Cane prices in UP are already among the country’s highest and the mills have been seeking a rationalisation of cane pricing as a necessary step to revive the industry.
According to industry analysts, Uttar Pradesh very often uses cane price as a political tool to woo vote bases in its farming community. This has gone a long way in making the industry unviable. "The only way out of this is that Uttar Pradesh rationalises its cane price and aligns it with the value of sugar and its first-stage by-products. Only then will it benefit both the industry as well as the farmers in long run," said one of them.
In fact, the Rangarajan panel had suggested linking cane price to that of its by-products and recommended that 70% of ex-mill prices of sugar and each of its three major by-products – bagasse, molasses and press mud – be paid to farmers for cane supplies. The committee also said that the benchmark price fixed by the Centre – also called the fair and remunerative price – be the minimum price for cane purchases.
Cane price fixed by UP (state-advised price or SAP) is the highest in the country, roughly 20% higher than in central Maharashtra, while its recovery rate is among the lowest at around 9% compared with 11% in Maharashtra. The recovery rate refers to the percentage of sugar production out of the crushing of a quintal of cane. Cane price accounts for around 65-70% of the cost of producing sugar
CA. Rajesh Desai