Sugar output in India, the world’s second-largest producer, may be less than forecast after some mills threatened to suspend crushing because of high cane prices, the Indian Sugar Mills Association said.
Production will probably drop from a September estimate of 25 million metric tons in the year that started on Oct. 1, Abinash Verma, director general of the millers’ group, said in a interview by phone today. Bajaj Hindusthan Ltd. (BJH), Dhampur Sugar Mills Ltd. (DSM), Triveni Engineering & Industries Ltd. and other producers in Uttar Pradesh, the nation’s biggest cane grower, will shutdown mills until the government fixed a viable cane price, the companies said in separate exchange filings.
“There may be a shortage and the country may need to import sugar if suspension of operation at mills in Uttar Pradesh continues,” said Verma. The state produced 7.48 million tons of sugar, or about 30 percent of the nation’s output in 2012-2013, according to the group.
A smaller crop in India may reduce a global glut, potentially boosting futures traded in New York that have plunged 52 percent from the 30-year high reached in February 2011. Indian producers are reeling under a rule that allows states to fix cane rates to help about 50 million farmers, a powerful voting bloc, earn more.
Local prices have tumbled to almost 17-month low, prompting factories in the top two states accounting for 62 percent of the nation’s output to sell below cost. At current prices, mills in Uttar Pradesh can only pay as high as 225 rupees per 100 kilograms (220 pounds) for cane, about 20 percent less than the state-set price for the 2012-2013 season, Verma said. Mills in Uttar Pradesh owed farmers as much as 24 billion rupees for canes supplied in the last season, he said.
Bajaj, India’s biggest producer, reported a record loss in the three months to Sept. 30, while Balrampur Chini Mills Ltd. (BRCM), the second-largest, posted its second straight quarterly loss. Mills spent an average 36 rupees to make 1 kilogram of sugar in Uttar Pradesh, while prices at the factory gate averaged about 31 rupees in 2012-2013, according to the association.
Shares of sugar producers rallied in Mumbai on speculation that cane prices may be reduced. Bajaj Hindusthan surged as much as 18.3 percent to 15.50 rupees, the most since Sept. 2, Dhampur jumped by the daily limit of 20 percent to 34.20 rupees, Triveni (TRE) climbed as much as 16.5 percent to 15.20 rupees and Balrampur advanced as much as 15.4 percent to 51.45 rupees.
“The market is expecting that sugar cane price may be reduced in Uttar Pradesh, or recommendations of Rangarajan committee will be adopted, which will be positive for the millers,” said Sanjay Manyal, an analyst at ICICIdirect.com. “A resolution to the issue has to be found.”
A panel headed by Chakravarthy Rangarajan, chief of the Prime Minister’s Economic Advisory Council, this year recommended linking cane prices to 70 percent of the value of sugar and by-products, while scrapping state controls on sale of sugar in the local market.
“Farmers are ready to negotiate with mills and the government to find a solution to the issue,” said Avadesh Mishra, president of the Cane Committees’ Association in Uttar Pradesh. “Mills should pay at least last year’s price to start factories until the government announces rates.”
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