Sugar Cycles: 7-8 years of losses followed by 2-3 years of super gains!


(GSrikan) #1295

This is extract from Dhampur’s presentation. The power & Distillary are contributing more to profits than last year due to more operational days of sugar crushing, lower molasses price, higher ethonol production etc.

The fixing of lower limit of sugar price @29 rs & other measures by govt seems to giving support for sugar price (31.5 rs/kg according to presentation).

According to Presentation: Dhampur is expanding distillary capacity from 3 to 4 lakh ltr/annum. Considering increasing it by 1 lakh ltr/annum more.

Dhampur is Paying off long term debt slowly and also reducing the short term debt.

The rupee depreciation & high oil rates should support the ethanol blending program & sugar exports.

Need to track how ethanol blending program progresses. The sugar industry re-rating depends on the success of this program.

The bumper crop of next year would increase the cost of holding big inventory in the form of increasing the interest burden, which is the primary negative I can see.

So far things are looking good or may be I am missing something which market knows.

Discl: Have only basic understanding of sugar sector & investing. Invested in Dhampur @200.
Edits: Distillation capacity related mistakes; million -> Lakhs; 3 lakh to 4 lakh; Apologies for wrong info


(Raj A A) #1296

(Mehnazfatima) #1297

Finally a breakout in Praj…I still think it would be more profitable to play Praj rather than sugar stocks to benefit from the ethanol procurement policy of Govt…

suagr cmpanies are supplying around 140 crore liters of ethanol to OMC now…this may go up to 160 crore liters approx after increase in ethanol procurement price by Govt…

the increase is around 5 ruppes per liter…so the industry gets additional 800 crores from ethanol in this year…quite good but not good enough to cause a cyclical turnaround

Hence I recommend Praj once again


(Raj A A) #1298

(Rajesh) #1299

Can anyone throw some light on companies gaining most by recent decision of government increasing ethanol pricea by 25 %. Actually this increase is only for companies making ethanol by sugarcane juice not molasses. Also the company will not make sugar at all.


Sintex (Demerged) - textile business
(Sidhegde) #1300

You can look at Praj Industries because of its high market share in ethanol plant installations.


(sougataG) #1301

(Raj A A) #1302

Lot of interesting things happening on sugar front.
1.Due to reduction on Ethanol import from USA, Brazil to produce more Ethanol with consequences of less sugar production.
2. Brazil currency is appreciating against Dollar leading to hardening of global sugar prices.
3. Continuous depreciation of rupee is making export viable.
4. Indian Govt policy of remunerative prices for Ethanol production from sugar cane juice leads to less production of sugar during the ensuing sugar season.
5. Rain deficient Marathwada region will lead to less than estimated production of sugar.

Sugar sector is likely to see good days ahead unless GOI plays spoilsport.

https://www.agriculture.com/markets/newswire/us-ethanol-exports-to-brazil-drop-to-nearly-3-year-low


(phreak) #1303

I was looking back at my initial research on Dwarikesh posted in this thread in April.

Looks like I thought the bottom could be 15-17 levels because of various reasons which is roughly where it bottomed out and has doubled from there. Unfortunately I stopped following the sector when it actually came into the buy zone of 15. I don’t think the current rally is sustainable either as its driven mainly by words than actions but the lesson here is to keep track of your own research, trust it and follow-up with actions, to put the money where your mouth is. Note to self.


(Rajesh) #1304

I am not sure if I should disagree with you regarding sustainability of sugar rally. But few points are worth noting.

  1. 10 MT of surplus sugar as inventory to start the season 18-18 and 10 MT as surplus to be produced in 18-19, Government had to do something otherwise entire farm sector would have collapsed. Already no growth in farm sector, overproduction of grains, cost of input increasing day by day but product … no offtake even on MSP. FCI godowns are already full.
    2.So government came out with lot of policies to divert sugar to ethanol. The only option as farmers are pressing for cane payments, mills are unable to pay. Most mills are in cooperative sector so the stress is on government only.
  2. Now policy is announced. I am not going into details of policy but in nut shell companies are getting Rs 11/kg as assistance to export. 5 MT FOR 18-19 AND 1.5MT balance quota of 17-18 needs to export. International prices now more than Rs 25/ kg so it is helpful to export the quota. No doubt still India will have surplus sugar but it would be manageable to keep sugar prices high enough to pay farmers and to get profits for companies.
  3. Now the long term solution came out to divert the sugar to ethanol. But no capacity. Almost all companies are installing distilleries to take benefit of this ethanol opportunity. The real benefit will flow from next sugar season as of now there is no capacity. Capacity is only for 4% blending, they can maximise upto 6% only by running on higher load. This will consume around 0.7 billion litres of ethanol or you can say 1.12 MT sugar.
  4. But next year sure industry will meet 10 % blending consuming 2.1 billion litres of alcohol or 3.3 MT of sugar. still we would have 5 or 6 MT of surplus sugar. So industry will start losing money again. Here we have to assume something and should go for logical thinking which policy makers may do or may not do. But situations are like this that they have to do. The point is, “Go for 20% blending”. It is the key. It will consume 3.5 billion litres more ethanol or 5.5 MT sugar. Now industry will have the tool to manage sugar overproduction and hence the price. Sugar may break its cyclicality. The cash flow equations will change to unimaginable points.
  5. I believe government has to do it. Reason is simple, all Indians, all businesses accross all industries want to see farm sector to grow. Sugar cane is profiting for farmers if payments are timely. This can consume a lot of land to reduce grain overproduction. Farmers will flourish, India, businesses, NIFTY will flourish as this is the only laggard in GDP growth. So now time has come to come with this policy. India has crossed brazil in sugar production not because sugar business is profitable, in fact, cane farming is profitable. It is almost impossible for government to reduce can area. One CM said frustratingly," Dont grow sugarcane as ita causes diabetes". Who does care ? It is business after all.
  6. Even if they dont come with ET20, situation is not bad even though for next two years. Brazil, Thailand have started focussing more on ethane reducing sugar. So next season might be sugar deficit, good chances for export. In fact, India has forced Brazil, Thailand to reduce sugar as India is new threat being largest producer. Also Al Nino is forming, it may gain strength or may not. We will not consider it as it has too many repercussions against mortals.
  7. Overall I firmly believe that it may be possible that this rally may not sustain but it is also sure that sugar industry will not remain in present shape. So these prices of assets dont support the changing scenario. At these prices of assets are unsustainable for better.
  8. Real threat is depreciation of Brazillian currency, downfall of crude prices.
  9. Beware of some industry tycoon statements as these are unbelievable lie. One said that India will consume 5MT of sugar this year and 10 MT of sugar next year to produce ethanol. I can not believe this vague statement as the limit from government is ET 10. If we believe this statement, sugar asset prices should be all time high already.
  10. We should understand the new phenomenon of sugar industry driving world sugar prices upwards even though it is sugar surplus year.

(sougataG) #1305

Informative post on moneylife https://www.moneylife.in/article/sugar-mills-worry-over-surplus-talk-of-industry-collapse/55549.html


(sougataG) #1306

(saumya) #1307

Changing Dynamics on sugar industry:

The central government in May had asked oil marketers to target 10 percent blending of ethanol with petrol as part of a national policy for biofuels. In September, it hiked the procurement price of ethanol by nearly 25 percent, spelling relief for sugar mills that were grappling with record output of the commodity. Further, it permitted ethanol production from sugarcane juice, potentially leading to higher remuneration.

The potential to blend ethanol with fuel is high, with the government targeting 10 percent blend. The current national average, according to Indian Sugar Mills Association, is 4.02 percent.

Sugar prices have rallied over 25 percent in the international market in October due to lower-than-anticipated production in Brazil. “Higher rainfall in key cane growing regions and strong ethanol demand is expected to lower Brazil’s output by nearly 9 million tonnes,” said Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd.

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Sources:

  1. https://www.bloombergquint.com/markets/can-ethanol-change-business-dynamics-for-sugar-industry#gs.LklRljI
  2. watch sugar output by narendra murkumbi

(Raj A A) #1308

Sugar Bull run has taken a temporary pause due to global weakness in price.

http://epaper.business-standard.com/bsepaper/svww_zoomart.php?Artname=MjAxODExMTNhXzAxMzEwMTAwNg==&ileft=188&itop=937&zoomRatio=130&AN=MjAxODExMTNhXzAxMzEwMTAwNg==