Starch makers cut output as demand falls

Last Updated: Tue, Oct 16, 2012 19:42 hrs

Maize starch producers have decided to cut production to 70 per cent of their capacities, to curtail losses due to high prices of the main input, maize, and lower demand for final products such as starch and glucose.

A 15 per cent correction in maize prices from their peak has provided some relief, but it hasn’t been enough.

Maize prices were around Rs 1,100 a tonne in mid-June; following the delay in rainfall, they rose by 43 per cent by the end of August. At such high prices, demand became an issue and the rain also revived, resulting in a 16 per cent fall in maize prices. This is a relief but reduced estimates for the kharif crop are a worry and the benefit of lower prices might be temporary.

Vishal Majithia, president, All India Starch Manufacturers Association, said, “The industry has cut production of starch as demand is much less and most units are operating at 70 per cent capacity; it used to be 90 per cent. Textile units have cut starch orders.”

Another player said some units had closed production. Most starch companies had entered into annual contracts to supply glucose to pharmaceutical companies at Rs 22 a kg and maize prices were assumed to average around Rs 11 a kg. However, the price of maize had gone above Rs 15 a kg before falling to Rs 13-13.5, while product prices have remain stagnant. A consultant said with the volatility in maize prices, most starch companies weren’t willing to enter into an annual contract for glucose supply.

The Union ministry of agriculture has estimated kharif maize production at 14.9 million tonnes (mt) this year against 16.2 mt last year. The rabi crop last year was a little over five mt.

“In many mandis, maize prices are around Rs 12,000 a tonne, near their minimum support price. In the Nizamabad mandi, however, prices are Rs 13,750 a tonne,” said Amit Sachdev, India representative, U S Grains Council.

Apart from less sowing and delayed rains, another reason for prices to go up was the attractive export opportunities and many have contracted to export maize at a realisation of Rs 15,500 a tonne. When they contracted, the dollar was at around Rs 56; it is now Rs 53 and exporters’ calculations are changing. An exporter, on condition of anonymity, said, “We are trying to renegotiate rates. Due to the rupee’s rise, net realisations from exports are falling, while we had procured maize earlier at higher prices.”

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