According to rating agency Icra, the national lockdown due to COVID-19 pandemic has adversely impacted the sugar demand, resulting in a decline in the sugar prices to closer to minimum support price (MSP) levels of Rs 31 per kg from Rs 32.5 per kg in February 2020.
The report further said that the sugar mills are unable to fulfill their monthly sales quota allocated by the government owing to demand squeeze.
"With nationwide lockdown, the ice cream, soft drinks and confectionery manufacturers have shut down their operations. Usually, quarter one is a healthy demand season for sugar, driven by the demand for ice creams and soft drinks during the summer season.
"With the lockdown, ICRA expects that the overall adverse impact on sugar consumption would be at least one million tonne in the domestic market," Icra Ratings Senior Vice President and Group Head Sabyasachi Majumdar said.
These factors have consequently led to a pressure on the working capital requirements of sugar mills and thus a rise in cane dues to farmers, he added.
With most countries under lockdown globally, the demand has also declined resulting in a fall of the global sugar prices, the report said.
However, the mills exporting sugar are likely to gain on rupee depreciation to an extent, it added.
The domestic sugar mills have already contracted close to 3.5-4 million tonne for export, it said, adding that the exports are likely to resume from June-July 2020.
Going forward, Icra expects that with the decline in crude prices, Brazil is likely to divert more cane towards sugar production which could exert pressure on global sugar prices.
Meanwhile, Icra said the cane crushing operations of the UP-based mills are being carried out as usual.
"While, there have been some issues with respect to the shortage of consumables (mainly lime sourced from Rajasthan) during the initial period of lockdown, the mills were able to procure the same with the intervention from the state government," Majumdar said.
However, in Maharashtra, he said the crushing operations have been impacted due to issues on harvesting and transportation owing to labour shortage with most of the migrant workers returning to their respective states.
"This is likely to result in lower sugar production by around 3-4 per cent in Maharashtra, when compared to earlier estimates of 6.2-6.3 million tonne for sugar year (SY) 2020, beginning in October," he added. SM DRRDRR