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Trouble for sugar mills as molasses prices crash |
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New Delhi, April 2 The crash in sugar prices over the last month or so has impacted mills' realisations from molasses as well.
Right through January and up to around February 10, mills in Maharashtra were selling molasses for Rs 5,200-5,600 a tonne and denatured spirit at Rs 25-26 a litre.
Liquor from grains
That was the time when ex-factory prices of sugar were ruling at Rs 40-plus a kg, and distilleries were finding it cheaper to manufacture liquor from grains after factoring in a Rs 10-a-litre subsidy from the Maharashtra Government.
But now, even as sugar realisations have slumped to Rs 25-26 a kg, molasses are fetching Rs 3,200-3,300 a tonne, having hit Rs 2,500-levels about 10 days back. Denatured spirit used by alcohol-based chemical makers have, likewise, fallen to Rs 20-21 a litre.
Bearish sentiment
“The sentiment is completely bearish and nobody wants to buy immediately, in expectation of further fall,” said Mr Gautam Sharma of Mumbai Logistics Company, a molasses and alcohol consultancy.
In Uttar Pradesh (UP), too, molasses are currently fetching Rs 2,500-3,000 a tonne and spirit Rs 23-24 a litre. At the peak, molasses was selling at Rs 3,500-4,000 a tonne, with prices not going up much, mainly because of the State Government's restrictions on exports and reserving 30 per cent of mills' production for country liquor units.
The current decline will especially benefit alcohol-based chemical makers such as India Glycols Ltd (IGL), Jubilant Organosys and Laxmi Organic Industries. All these companies, till recently, were operating at very low capacity utilisation, while replacing domestic manufacture with merchant imports of final products from mono-ethylene glycol to acetic acid, butyl acetate and vinyl acetate monomer.
Import of spirits
“The situation has certainly improved,” noted Mr Rakesh Bhartia, CEO of IGL.
During the 2008-09 sugar season (October-September), alcohol-based chemical units had to import some 36 crore litres of denatured hydrous spirit to meet a part of their annual 100 crore-plus litre requirement. These imports were done at an average $500 a tonne, cost & freight Mumbai/Kandla or Rs 18.5-19 a litre (one tonne equals 1,240 litres).
In the new 2009-10 season, no imports could be contracted, as landed prices of imports reached $800-850 a tonne or Rs 30-plus a litre in December-January. But, again, with international raw sugar prices falling from 30 to 17 cents a pound in the last two months, imported shipments for May-June delivery are said to be quoting at $600-610 a tonne.
“The big news really is of the US now turning an alcohol exporter from being an importer. And that is what is bringing down prices,” Mr Bhartia added. At $600 a tonne, the landed price of imported spirit would work out to below Rs 22 a litre.
Output may rise
Domestic sugar mills were initially expected to crush only around 150 million tonnes (mt) of cane this season, translating into a molasses output of 6.3 mt at 4.2 per cent average recovery. But now, with crushing slated to cross 180 mt, production may hit 7.6 mt.
Even if 20 per cent of this would go for alternative industries such as animal feed and foundries, about 6 mt would be left for distilleries. At 250 litres to a tonne, the country's total alcohol output would come to 150 crore litres. On the demand side, potable alcohol and chemical manufacturers' annual requirements are put at 100 crore litres each.
Source : Business Line
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