SUGAR AND ALLIED

INDUSTRY

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

0.70.7

0.6 0.6

0.70.7

0.5

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

)

(0.3

)

(0.9

)

(1.5

)

(0.3

)

(0.3

)

(4.4

)

(4.4

)

(4.5

)

(4.6

)

(4.9

)

(5.1

)

(5.4

)

(5.4

)

(5.6

)

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)

ML

N T

ON

S

Opening Stock Domestice Production Imports Total Available Sugar Suppply Exports Consumption Closing Stock

Government support

for farmers by

notifying minimum

sugarcane price led

the area under

cultivation to increase

In MY19, water

shortage posted a dip

in area under

cultivation

Sugarcane cultivation

area: Punjab ~ 65%,

Sindh ~ 25% and

KPK~ 10%

In MY20, water crisis

are expected to further

reduce the area under

cultivation

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 118112

58

64

67

6365

75

83

67

64

0

10

20

30

40

50

60

70

80

90

0

20

40

60

80

100

120

140

160

MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19 MY20 (Analyst

Forecast)

mln

to

ns

Are

a (

10

,00

0 h

ec),

Yie

ld/H

ec (

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%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19 MY20(AnalystForecast)

Mln

To

ns

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

5.6

4.75.1

5.65.2 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

(Analyst

Forecast)

mln

to

ns

Sugar Consumption Sugar Production

Sugar | Production vs. Consumption

In MY16 Cane

Commissioner fixed the

price at PKR 172 for

Sindh, lower than

Punjab, and was

successfully challenged

by growers

Announced cane prices

were maintained in

MY19

In MY20, cane price

may surge upto PKR 200

per 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

(Analyst

Forecast)

PK

R p

er 4

0k

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

50

55

60

65

70

75

80

MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19 MY20

(Analyst

Forecast)

PK

R/4

0 k

g

PK

R/k

gComparison| Sugarcane Cost vs. Sugar Retail Price

Average Retail Price Sugarcane Indicative Price (RHS)

In MY18: sugar export

surged due to raised export

quota ~ 2mln MT coupled

with export subsidy of Rs

10.7/kg from the federal

government and an

additional subsidy of Rs

9.3/kg from the Sindh

government

In MY19, export quota was

revised to 1.1mln MT with

no subsidy was announced

at federal level

Punjab announced a

provincial subsidy of Rs

5.3/kg

Sugar exports are expected

to remain low due low

prices in international

market

Source: Pakistan Bureau of Statistics, USDA Foreign Agricultural Services GAIN Report

Sugar Industry | Exports

0.1

1.2

0.7

0.4

0.3

0.4

1.5

0.5

0.3

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19 MY20

(Analyst

Forecast)

mln

to

ns

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

54

62

7072

75

54

49

46

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

40

45

50

55

60

65

70

75

80

MY12 MY13 MY14 MY15 MY16 MY17 MY18 MY19

(Till Mar)

July Aug Sept

US

D/K

g

PK

R/k

g

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 Share

1 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 Sugarcane

prices leads to high cost of production for the millers. While, the retail price for sugar rely

on supply - demand dynamics.

─ Unfeasible export avenues: Difficulty in selling sugar in the international market at better

prices 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 in

electricity generation and paper/chip board

Previous New

Sales Tax Sugar - Registered 8% (fixed @PKR 60/kg) 17% MRP

Additional 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 MY15

United 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 MY15

Sugarcane 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

$ /

lit

er

Etanol Price Trend

─ Reduced Production: Low sugarcane yield resulting in low output produced in form of

molasses 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 we

consider to be reliable but its accuracy or completeness is not guaranteed. The information in this document may be

copied or otherwise reproduced, in whole or in part, provided the source is duly acknowledged. The presentation

should not be relied upon as professional advice.

Analyst Ayesha Malik

ayesha.malik@pacra.com

Contact Number: + 92 42 3586 9504