Date:27/07/2006 URL: http://www.thehindubusinessline.com/2006/07/27/stories/2006072702271200.htm

Back Inventory build-up worries sugar mills

L.N. Revathy

Cash flow problem feared

The scenario
The mill sector has sensed the opportunity for export especially to Bangladesh, Pakistan and Indonesia. Sugar production in the ensuing season is expected to rise to 24 lt and this is expected to push up the inventory.

Coimbatore , July 26

Sugar mills, particularly in Tamil Nadu, appear to be in a sticky situation in view of the ban imposed on export of sugar and inventory pile-up.

If the situation persists, the mill sector could end up facing a cash crunch situation in the not too distant future.

"Cash flow would be a problem if exports are not allowed within the next month or two. Sugar stockpile is already about 50 per cent of the production and the next season is round the corner (two months away). Mills are still crushing and we anticipate an increase in the cane output in the coming season," Mr M. Manickam, Vice-Chairman and Managing Director of Sakthi Sugars, told Business Line.

Industry sources say that with mills optimising their capacity and still continuing to crush the cane, the inventory build up is quite heavy.Sugar stock levels (year-to-date) at the mills (both private and co-operative) in the State touched a high of 8.19 lt on May 31. However, by June-end it dipped to 63 lt.

Worried over the inventory build-up, the mill sector has been reiterating its demand for opening up the market for sugar exports. It has sensed the opportunity for export especially to Bangladesh, Pakistan and Indonesia.

"At present, only limited quantities are being exported and this is against advance licence. While there is great potential, the mills in Tamil Nadu are land-locked and freight charges for shipment to the Kolkata Port are phenomenal," Mr Manickam said.

India was shutting down on sugar exports at a time when the world market was actually opening up, he said.

The average monthly production of sugar in Tamil Nadu is around 21 lakh tonnes (lt) and the consumption averages at 8 lt.

During the current season (October 2005-Septmber 2006), production till June was up at 18.42 lt compared with 13.45 lt during the year-ago period.

Meanwhile, sugar production in the ensuing season is expected to rise to 24 lt and this is expected to push up the inventory further.