SUGAR AND ALLIED INDUSTRY - PACRA
25
SUGAR AND ALLIED INDUSTRY DEC 2019
Transcript of SUGAR AND ALLIED INDUSTRY - PACRA
SUGAR AND ALLIEDINDUSTRY
DEC 2019
Process Flow
Sugarcane
Sugar Molasses
Ethanol
Bagasse
Power
Paper & Chipboard
Sugarcane Cubes
Farmer Sugar MillDistributor
&/or Industrial Consumers
Retail Stores End Customer
Supply Chain | Where do they fall?
Source: Economic Survey, Pakistan Bureau of Statistics and Pakistan Sugar Mills Association Annual Report, USDA Foreign Agricultural Services GAIN Report, World Food Outlook – May’19
In MY19:
Value Addition in Agriculture ~ to 2.9%
Contribution in GDP ~ to 0.5%
Total No. of Industry Players ~ 75
Total No. of Listed Players - 30
Total No. Mills ~ 90
Total Sugar Production ~ 5.3mln tons
Total Sugar Consumption ~ 5.4mln tons
Average Per Capita Sugar Consumption: Pakistan ~ 25.6 kg Global ~ 23.1 kg
Sugar Industry | Key Stats
3.7
3.23.4
3.1 3.23.4
3.6
2.90.8
0.7 0.70.6 0.6
0.7 0.70.5
0
0.5
1
1.5
2
2.5
3
3.5
4
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19
Agriculture's Value Addition (%) Contribution in GDP (%)
In MY19:
Cultivated land declined by ~12%
Sugar production declined by ~16%
Allowed Export Quota ~ upto 1 mln tons
Without freight subsidy, except Punjab @ Rs 5.3/Kg
Meagre exports ~ 0.2mln ton till Oct -Mar’19 (SMPLY: 0.8mln tons)
Reason: Low prices in international market compared to 0.8mln MT in SMPLY.
Key Assumptions for MY20 (Analyst Forecast):
Cultivated land projected ~ dip by 5%
Sugar production projected ~ dip by 5%
Exports may decline to 0.3mln tons as:
In domestic market: demand barely met plus maintains minimum stock levels
In international market: low sugar prices making exports non-competitive
Sugar Industry | Key Stats
Sugar Industry Dynamics1.
1 1.4
0.8 1.
2 1.3
1.3
2.3
2.0
1.6
4.7 5.
1 5.6
5.2
5.1
7.1
6.6
5.3
5.1
0.0
0.0
- - - - - - -
5.8 6.
5
6.5
6.4 6.5
8.3 8.
9
7.3
6.7
(0.0
)
(1.2
)
(0.8
)
(0.4
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(0.3
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(0.9
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(1.5
)
(0.3
)
(0.3
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(4.4
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(4.4
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(4.5
)
(4.6
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(4.9
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(5.1
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(5.4
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(5.4
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(5.6
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1.4
0.8 1.
2 1.3
1.3
2.3
2.0
1.6
0.8
M Y1 2 M Y1 3 M Y1 4 M Y1 5 M Y1 6 M Y1 7 M Y1 8 M Y1 9 M Y2 0 (ANALYST
FO RECAST)
MLN
TO
NS
Opening Stock Domestice Production Imports Total Available Sugar Suppply Exports Consumption Closing Stock
Government supportfor farmers bynotifying minimumsugarcane price ledthe area undercultivation to increase
In MY19, watershortage posted a dipin area undercultivation
Sugarcane cultivationarea: Punjab ~ 65%,Sindh ~ 25% andKPK~ 10%
In MY20, water crisisare expected to furtherreduce the area undercultivation
Source: MY20 – Production Target (69 mln tons) - Monetary Policy Compendium - PBS & Planning Commission of Pakistan, USDA Foreign Agricultural Services GAIN Report, Pakistan Sugar Mills Association Annual Report
Sugarcane | Cultivation and Production
105 113 117 111 113 122 134 118 112
58
6467
63 6575
83
6764
0
10
20
30
40
50
60
70
80
90
0
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40
60
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MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19 MY20 (AnalystForecast)
mln
ton
s
Are
a (1
0,00
0 he
c), Y
ield
/Hec
(ton
s)
Sugarcane| Area Under Cultivation and Production
Plantation Area Production (RHS)
Source: USDA Foreign Agricultural Services GAIN Report, Pakistan Sugar Mills Association Annual Report, MY19 - Based on average utilization by mills and provisional Sugar production data
Lower than global average recovery rate in Pakistan (Brazil ~ 14%, India ~ 11.5%) Higher recovery rates in Sindh Significant R&D initiatives required to improve recovery rates
48.2 50.1 56.5 50.8 50.0 71.0 65.6 55.9 53.1
4.7 5 5.6 5.1 5.1 7 6.6 5.4 5.1
9.8%10% 9.9% 10% 10.2%
9.9% 10%9.6% 9.6%
8%
9%
10%
11%
0.010.020.030.040.050.060.070.080.0
MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19 MY20(AnalystForecast)
Mln
Ton
s
Sugarcane Crushed, Production & Recovery
Cane Crushed Sugar Made Recovery
Sugarcane | Processing
Source: USDA Foreign Agricultural Services GAIN Report, Pakistan Sugar Mills Association Annual Report
Local Market: Surplus production than required consumption level Domestic consumption increase in line with population growth Soft Drink and Confectionary Industry constitute a significant portion of in Sugar consumption
4.3 4.4 4.5 4.64.9 5.1 5.2 5.4
5.64.7
5.15.6
5.2 5.1
7.16.6
5.3
5.1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19 MY20(AnalystForecast)
mln
tons
Sugar Consumption Sugar Production
Sugar | Production vs. Consumption
In MY16 CaneCommissioner fixed theprice at PKR 172 forSindh, lower thanPunjab, and wassuccessfully challengedby growers
Announced cane priceswere maintained inMY19
In MY20, cane pricemay surge upto PKR 200per 40 kg
Source: Pakistan Sugar Mills Association Annual Report
Sugarcane Price | Notified by Government
150
170 170
180
180
180 180 180
190
154
172172
182
172
182 182 182
192
120
130
140
150
160
170
180
190
200
MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19 MY20(AnalystForecast)
PKR
per
40k
g
Mill Gate Delivery Prices
Punjab & KPK Sindh
192-200
190-200
Sugarcane support price (input) remain consistent despite dip in sugar price (output) Selling price of sugar determined by market dynamics stood at an average of PKR 54/kg during MY18. The prices have rallied up to PKR 75/kg from MY19 (Aug) In MY20, prices are expected to remain high due to demand glut
Source: Pakistan Sugar Mills Association Annual Report
Sugar | Cost-Price Comparison
61
53 54 55
64 65
54
62
75
151
171 171
181177
181 181 181
191
150
155
160
165
170
175
180
185
190
195
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55
60
65
70
75
80
MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19 MY20(AnalystForecast)
PKR
/40
kg
PKR
/kg
Comparison| Sugarcane Cost vs. Sugar Retail Price
Average Retail Price Sugarcane Indicative Price (RHS)
In MY18: sugar exportsurged due to raised exportquota ~ 2mln MT coupledwith export subsidy of Rs10.7/kg from the federalgovernment and anadditional subsidy of Rs9.3/kg from the Sindhgovernment
In MY19, export quota wasrevised to 1.1mln MT withno subsidy was announcedat federal level
Punjab announced aprovincial subsidy of Rs5.3/kg
Sugar exports are expectedto remain low due lowprices in internationalmarket
Source: Pakistan Bureau of Statistics, USDA Foreign Agricultural Services GAIN Report
Sugar Industry | Exports
0.1
1.2
0.7
0.40.3
0.4
1.5
0.5
0.3
0.0
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MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19 MY20(AnalystForecast)
mln
tons
Source: Pakistan Sugar Mills Association Annual Report, Pakistan Bureau of Statistics, International Sugar Organization
Depressed international sugar prices due to excess sugar supply emanating from India and Thailand Domestic Sugar prices are higher owing to lower yields, high recovery rates and high cost of production Increase in Domestic prices emanates from lower sugar production during MY19
Sugar | Price Comparison
61
53
54
56
6365
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62
7072
75
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4946
38
48
53
43
48 53
48
54
0.61
0.50
0.46
0.38
0.46 0.48
0.36
0.35 0.33
0.31
0.34
0.30
0.35
0.40
0.45
0.50
0.55
0.60
0.65
35
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55
60
65
70
75
80
MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19(Till Mar)
July Aug Sept
USD
/Kg
PKR
/kg
International vs. Domestic Retail Prices
Average Retail Price (Domestic) Average Futures Prices (International) PKR Per kg Average Futures Prices (International)USD/MT
Market Share | Top Ten Industry Players
Sr. # Sugar Mill Region Production (MT) Recovery Rate Market Share1 J.D.W (Combined) Punjab & Sindh 888,711 10.5% 14%2 HAMZA Punjab 382,495 10.4% 6%3 TANDLIANWALA (Combined) Punjab 220,698 8.9% 3%4 DEHARKI Sindh 205,788 10.9% 3%5 SHEIKHOO KPK 195,006 9.8% 3%6 CHASMA (Combined) KPK 193,323 9.4% 3%7 ETIHAD Punjab 170,855 10.7% 3%8 LAYYAH Punjab 168,596 9.8% 3%9 TWO STAR Punjab 162,514 9.6% 2%
10 R.Y.K Punjab 162,398 10.7% 2%11 INDUS Punjab 148,530 10.9% 2%12 FATIMA Punjab 146,355 10.0% 2%13 HUNZA (Combined) Punjab 144,739 8.7% 2%14 MEHRAN Sindh 120,200 11.5% 2%15 ALLIANCE Sindh 115,930 9.8% 2%16 AL-NOOR Sindh 110,810 10.0% 2%17 AL-MOIZ (Combined) Punjab & KPK 210,907 10.1% 3%18 HABIB Sindh 106,005 10.3% 2%19 FARAN Sindh 105,633 10.7% 2%20 Others 2,620,620 40%
6,580,113
Production Share of Top Players - MY18
Total
Source: Pakistan Sugar Mills Association Annual Report
─ Fluctuating gross margins due to cost-price disparity: Government notified Sugarcaneprices leads to high cost of production for the millers. While, the retail price for sugar relyon supply - demand dynamics.
─ Unfeasible export avenues: Difficulty in selling sugar in the international market at betterprices despite devaluation of PKR in years of excess production.
┼ On import of sugar: Imposing 40% regulatory duty in Jun-15 (Previously: 20%).┼ Diversification through revenues from co-generation projects: (i) molasses is also used
in the production of pharmaceutical and fuel grade ethanol while (ii) bagasse is used inelectricity generation and paper/chip board
Previous NewSales Tax Sugar - Registered 8% (fixed @PKR 60/kg) 17% MRPAdditional Sales Tax - Unregistered 3% -Regulatory duty on imports 40%No sales tax on sugarcane as it’s an agriculture
Regulatory Structure & Risk Analysis
Farmer Sugar MillMolasses -Supplier/
Distributor
Industrial Consumer –
Ethanol Plant
Local Consumer
and/or Export
Supply Chain | Where do they fall?
Ethanol | Key Sources
• 3 Key Sources • Sugar – sugarcane, beet root, sweet sorghum • Starch – corn and wheat • Cellulose – wood, switch grass and corn stover
Ethanol | Process Flow
• Dry milling : 90% of ethanol produced• Process
• From starch (grains): pre-processing to be transformed into glucose and its fermentation• From sugarcane: simply dissolved in water
Source: Bioenergy Australia
Ethanol | Global Production
• United States• Source of production: 90% - corn, 10% - wheat/sorghum• Consumption: 919,000 barrels per day
• Brazil• Source of production: sugarcane• Consumption: 460,000 barrels per day
Source: Renewable Fuels Association
Region MY18 MY17 MY16 MY15United States 60,797 60,324 58,344 56,050 Brazil 29,980 25,968 25,589 27,255 European Union 5,413 5,300 5,212 5,250 China 3,975 3,255 3,199 3,078 Canada 1,817 1,779 1,650 1,650 Thailand 1,476 1,401 1,219 1,264 India 1,514 795 1,041 738 Argentina 1,098 1,098 999 799 Rest of World 2,078 1,567 1,855 1,480
Total 108,148 101,487 99,108 97,564
Golbal Ethanol Production (mln Liters)
Source: Company websites and annual accounts
Ethanol | Local Industry Players
Location Listing Activity Capacity
(Liters/day)1 Madinah Group of Indutries Punjab Unlisted Sugar & Ethanol 375,000 2 Shakarganj Mills Limited (Non-operational since 2015) Punjab Listed Sugar & Ethanol 350,000 3 Tandlianwala Sugar Mills Limited (Defaulter) Punjab Listed Sugar & Ethanol 255,000 4 Shahmurad Sugar Mills Limited Sindh Listed Sugar & Ethanol 250,000 5 Unicol Limited Sindh Unlisted Ethanol 200,000 6 Premier Industrail Chemical Manufacturing (Pvt) Ltd Punjab Unlisted Ethanol 175,000 7 Al-Abbas Sugar Mills Limited Sindh Listed Sugar & Ethanol 172,500 8 Habib Sugar Mills Limited Sindh Listed Sugar & Ethanol 142,500 9 Colony Sugar Mills Limited Punjab Listed Sugar & Ethanol 135,000
10 Noon Sugar Mills Limited Punjab Listed Sugar & Ethanol 130,000 11 Dewan Sugar Mills Limited Sindh Listed Sugar & Ethanol 125,000 12 Abdullah Sugar Mills Limited Punjab Unlisted Sugar & Ethanol 125,000 13 Hunza Sugar Mills (Pvt) Ltd Punjab Unlisted Sugar & Ethanol 125,000 14 Chasma Sugar Mills Limited Punjab Listed Sugar & Ethanol 125,000 15 United Ethanol Industries Limited Punjab Unlisted Ethanol 120,000 16 Matol (Pvt.) Ltd Sindh Unlisted Sugar & Ethanol 100,000 17 Crystalline Chemical Industries Pvt Limited Punjab Unlisted Ethanol 100,000 18 Pak Ethanol (Pvt) Ltd Sindh Unlisted Ethanol 70,000 19 Khazana Sugar Mills (Pvt) Limited KPK Unlisted Sugar & Ethanol -
3,075,000
Players
Total
Ethanol | Local Production• Source : Sugarcane • Type : Food grade ethanol - Extra Neutral Alcohol (ENA) with a strength >96.4%
Source: SBP, PBS & PSMA
Description MY18 MY17 MY16 MY15Sugarcane Crushed (mln MT) 65.6 71.0 50.0 50.8 Sugarcane Conversion to Molasses 4.5% 4.3% 4.5% 4.4%Molasses Production (mln MT) 3.0 3.1 2.2 2.2 Molasses Exported (mln MT) 0.2 0.1 0.1 0.1 Molasses Available for Production (mln MT) 2.8 3.0 2.2 2.2 Ethanol Produced (mln MT) 0.8 0.8 0.6 0.6 Ethanol Exported (mln MT) 0.6 0.3 0.3 0.3
Industry Statistics
Ethanol | Price Trend
Source: Market Insider
1/7/2019
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
9/1/2015 9/1/2016 9/1/2017 9/1/2018 9/1/2019
US
$ / l
iter
Etanol Price Trend
─ Reduced Production: Low sugarcane yield resulting in low output produced in form ofmolasses resulting in price surge. Prices are expected to remain high in MY20.
─ Impact on Price - Molasses:─ In local market - prices have almost doubled in MY19 in comparison to MY18. Price may remain
high in MY20.─ In export market – rupee depreciation has made the export front favourable for the industry.
─ Pressure on Margins: High input cost – molasses - exerts pressure on industry’s margins,however, remain high.
─ Impact on Price - Ethanol:─ In local market - price will remain high in MY20 due low availability of input and high input cost.─ In export market – rupee depreciation has made the export front favourable for the industry,
however, price remain a factor of international demand/supply dynamics.
Risk Analysis
DISCLAIMERPACRA has used due care in preparation of this document. Our information has been obtained from sources weconsider to be reliable but its accuracy or completeness is not guaranteed. The information in this document may becopied or otherwise reproduced, in whole or in part, provided the source is duly acknowledged. The presentationshould not be relied upon as professional advice.
Analyst Ayesha Malik [email protected]
Contact Number: + 92 42 3586 9504
