The head of International Sugar Organization (ISO) has stated that the sugar surplus generated by Indian companies is frightening and will supress prices for a long time.
Peter Baron, executive director of the ISO, said in an interview at the Asia International Sugar Conference 2007:
Quote:
I don't know whether they (prices) will go down, but they will not go up.
The ISO has increased its forecast for world sugar surplus for FY 2008 to 10.8 million tonnes from 10.3 million tonnes in FY 2007.
India's production of sugar is expected to touch 33.5 million tonnes in FY 2008 compared to FY 2007's production of 29 million tonnes.
It is expected to rise further in FY 2009.
This is real bad news for sugar companies and investors should avoid the sugar stocks.
The head of International Sugar Organization (ISO) has stated that the sugar surplus generated by Indian companies is frightening and will supress prices for a long time.
Peter Baron, executive director of the ISO, said in an interview at the Asia International Sugar Conference 2007:
The ISO has increased its forecast for world sugar surplus for FY 2008 to 10.8 million tonnes from 10.3 million tonnes in FY 2007.
India's production of sugar is expected to touch 33.5 million tonnes in FY 2008 compared to FY 2007's production of 29 million tonnes.
It is expected to rise further in FY 2009.
This is real bad news for sugar companies and investors should avoid the sugar stocks.
Hi Alchemist,
This is the news on 29-08-07 -
'Key sugar stocks were up by 1.63% to 12.16% on reports that a group of ministers had recommended mandatory blending of 10% ethanol with petrol to deal with the massive oversupply of sugar.
Upper Ganges Sugar & Industries (up 12.16% to Rs 71.15), Oudh Sugar Mills (up 5.98% to Rs 49.60), Balrampur Chini Mills (up 5.15% to Rs 58.15), Shree Renuka Sugars (up 4.67% to Rs 510.25), Dhampur Sugar Mills (up 6.47% to Rs 52), Triveni Engineering & Industries (up 6.97% to Rs 67.55), Bajaj Hindustan (up 3.92% to Rs 132.70), DCM Shriram Industries (up 3.13% to Rs 41.15), EID Parry (India) (up 1.63% to Rs 121.35), edged higher.
'
Even today prices of all of the above stocks are higher except the first one.
How do you evaluate the effect of 'blend of ethanol with petrol' on prices of the sugar industry stocks? [The price that would be offered per liter of ethanol has been declred at Rs 21.50]
Out of Rs 21.5 that the sugar companies will get for the ethanol, the profit is expected to be around Rs 6.5 per litre.
India currently consumes around 1100 crore litres of petrol every year.
10% blending would mean requirement of 110 crore litres of ethanol.
At Rs 6.5 profit per litre, the profits of sugar companies are expected to go up by Rs 715 crore.
Will this really make a major difference to the earnings to sugar companies?
Lets take an example of Balrampur Chini.
It has a distillery capacity of 320 KLPD = 320000 LPD = 320000 X 365 Litres Per Year.
(I could not find how much of the distillery capacity is for ethanol and so I assumed 100% is for ethanol.)
This equals 11.68 crore litres per year.
This means an additional profit of Rs 75 crore per year.
The company has 24.8 crore shares outstanding.
This means additional profit of Rs 3 per share. (I have edited this. Earlier figure of 248 crore shares and 30 paise was incorrect.)
That is it. Many of the sugar mills are actually making loses at current sugar prices. It may be possible for the ethanol blending to bring them back to profits. However, unless the sugar price itself rises, it will not be possible for the sugar companies to achieve profit levels that they saw in 2005-2006.
Indian sugar companies already have an ethanol capacity of 150-180 crore litres per year. So there is also not much scope of increasing profits by capacity expansions.
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What about sugar prices?
More ethanol can be produced when primary juice is also used (mixed with secondary juice) for ethanol production.
In such a case, it is estimated that for every tonne reduction in sugar production, 300 litres of ethanol can be produced.
If India's requirement is 110 crore litres per year, the sugar production will go down by .36 crore tonnes or 3.6 million tonnes.
Now with a sugar production of 33.5 million tonnes and a demand of 20-22 million tonnes, this reduction of supply by 3.6 million tonnes is not really going to make much difference to sugar prices.
====================================
Thus neither do I see substantial cash flows for the sugar companies nor any strengthening of sugar prices because of the mandatory blending regulations.
A few companies may benefit if they have unused/upcoming distillery capacities, but on the whole, I don't see any reason to get overly-bullish on the sugar stocks.
hello sir,
as govt is going to blend 10% of ethanol (price 21.5 rs / Ltr) into petrol (price 48 rs / ltr), shld we assume that petrol prices may come down by 5.5% ?
hello sir,
as govt is going to blend 10% of ethanol (price 21.5 rs / Ltr) into petrol (price 48 rs / ltr), shld we assume that petrol prices may come down by 5.5% ?
(90% * 48)+(10% * 21.5)= 45.35 Rs/ltr
lets hope so!
It won't make much of a difference.
Out of Rs 48 or so that one pays for petrol, half is due to taxes and duties.
These may as well apply to ethanol and the final consumer may end up paying the same price as he did for non-blended petrol.
Does this blending be a positive factor for praj industries which manufactures the machinery for this industry?
outlook for short & long term for praj?
Does this blending be a positive factor for praj industries which manufactures the machinery for this industry?
outlook for short & long term for praj?
Yes definitely. I looked at the stock yesterday.
It is not exactly a cheap stock and may take some time to show good returns, but still I feel it is a good long term bet.
The International Sugar Organization (ISO) has stated yesterday that India will become world's largest sugar producer in 2007-2008. Brazil was the largest sugar producer in 2006-2007.
The ISO has forecasted sugar production to touch 33.15 million tonnes in 2007-2008. This will be higher by 8% compared to 2006-2007.
The oversupply problems in the sugar industry aren't going to vanish soon.
First positive development was the announcement that the government was thinking about a sops to the sugar industry to help them pay farmers.
Another positive development was that sugar prices have shot up sharply at London's LIFFE exchange (Euronext) . Rising crude oil prices are leading to the speculation that globally more ethanol will be used for blending with petrol and this will reduce the supply of sugar.
However, there has been one development that is disturbing for me. Agriculture Minister Sharad Pawar said today that the government may allow ethanol production directly from sugarcane.
This has not been allowed till now. Sugar companies had to make ethanol only from the molasses(that is left after sugar extraction from sugarcane juice).
Now on the face, this looks like a great decision for the sugar companies. Directly making ethanol from the primary juice will mean three times more ethanol and less sugar.
So more of profitable product and less of loss making product?
Not really.
As someone pointed out on CNBC today, this will allow non-sugar companies to jump into the ethanol market and compete with the sugar companies. CNBC reported today that even Reliance was thinking of starting ethanol production from sugarcane if the government would allow it.
As I pointed out in my earlier post, there is more ethanol capacity in India, than what is required for 10% blending.
As long as ethanol is made just from molasses, only sugar companies produce ethanol. However, if government allows non-sugar companies to make ethanol from sugarcane, it would be a disaster for the sugar companies. The sugar companies may find it difficult to sell their ethanol if non-sugar companies are competing with them.
(Non-sugar companies will have no use of juice left after ethanol-extraction, as they will not be making sugar out of it. However, companies like Reliance can save Rs 6.5 per litre of ethanol by manufacturing it themselves at Rs 15, rather than buying it at Rs 21.5 from the sugar companies.)
There is still a lot of over-supply of sugar in India and all over the world. If there is large scale increase in use of sugarcane-generated ethanol for petrol blending, world's sugar supply may be reduced significantly.
However this doesn't seem possible in the near future.
Ethanol blending is not going to make much profits for the sugar companies. According to S.P.Tulsian , sugar companies will get Rs 1000 crore extra profits from ethanol blending, but these companies are accumulating losses of Rs 5000 crore every year because of the slump in the sugar prices.
I still don't see any reason to go long on the sugar stocks.
The sugar companies may find it difficult to sell their ethanol if non-sugar companies are competing with them.
(Non-sugar companies will have no use of juice left after ethanol-extraction, as they will not be making sugar out of it. However, companies like Reliance can save Rs 6.5 per litre of ethanol by manufacturing it themselves at Rs 15, rather than buying it at Rs 21.5 from the sugar companies.)
What I feared, may actually become true.
Two days back I read this report in Business Standard...
Tata, Reliance, Bharti, IOC etc ....everyone now wants to make an entry into ethanol production.
I am still investigating this. I have downloaded Sugar data but still haven't looked at it carefully.
ICICI has published a report on Sugar industry outlook where they are bullish on this sector 1- 1.5 years down the line.
Currently sugar prices are hovering at 15 rupees up from 3-4 months back price of 12 Rs and 1.5 years back they were 22.9 rupees during peak season.
- It is a pure seasonal industry and ICICI predicts that farmers will abandon Sugarcane farming and move to other crops due to low obtained price of sugarcane.
- With 10 % ethanol blending in India one should expect a better price for Sugarcane.
- The sugar stock of india is predicted to go down, thus removing excess in system and leaving excess upto next 6 months.(Read detailed report from ICICI, if you want to know WHY?)
- The sugar stock of world is suppose to go down.
Watch out for Sugar price movement and entry in Sugar stocks accordingly. Sugar will correct till 1324/-
Last edited by man4urheart : 14th May 2008 at 12:28 PM.
Sugar is sizzling. As usual, I missed the bus with only a small exposure to EID Parry after getting out of Renuka & Bajaj (at a loss) when things looked darkest. .
Alchemist, I think the title of this thread could be revised a wee bit to reflect the uncertainties .
Anyway, here's a link to a piece about an alternative sweetener that could change the dynamics of the sector a bit:
Corn is ready to sweeten our lives
Nidhi Nath Srinivas Thursday January 21, 2010 Link
This lady's articles generally appear to be well-written and well-informed.
In this context, there's this BSE-only stock, Riddhi Siddhi Glucobiol. I had got in and out of this in early 2008 based on a piece in the Smart Investor by the guy who's touting the stock again here.
Overall, the stock price hasn't gone anywhere since the time I first looked at it but any feedback in view of the present circumstances is welcome.
Last edited by vasa1 : 19th February 2010 at 06:25 PM.
Reason: link added
Alchemist, I think the title of this thread could be revised a wee bit to reflect the uncertainties .
Even tough sugar prices may remain firm for a few more months, the prices will soften again in a year or 2.
If we have to find a long-term replacement for sugar, it has to be cheaper than the average price of sugar.
Quote:
India grows about 18 million tonnes corn annually and one kilo gives 600 gm fructose. Industry watchers say, at current corn prices, the basic grade - HFCS 45% - would cost Rs 26/kg at factory gate and can reach the wholesale market in barrels, after paying tax, at about Rs 32/kg.
That's not cheap at all. It may be lower than the current price of sugar, but we mustn't forget that the supply-demand gap is sugar is exceptionally wide and such high prices won't last forever.
(I don't know about the sweetening ability of HFCS compared to sugar and just comparing on weight basis).
Quote:
The sugar prices have been remained firm on the back of fundamental tightness in sugar, which is expected to continue till December 2010. Sugar Season (SS) 2009-10 is expected to be the tightest global demand-supply year since 1960.
Quote:
Though there is concern that the Brazilian sugar production may be higher and will boost the sugar supply in global market resulting in softening of sugar prices from the current level but more clarity will emerge post May'10 only
Raw sugar prices probably will decline from a 29-year high this year as a “huge increase” in production driven mainly by Brazil may balance the market, according to German research company F.O. Licht.
Quote:
The International Sugar Organization estimated on Nov. 13 the supply deficit will be 7.2 million tons in the year ending September, moving to a 500,000-ton surplus the next year.
Sugar Over-Supply Frightening - ISO Head
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