August 12th 2015
Indian starch makers in dire straits.
Higher costs, lower margins and competition force starch makers to under-utilise capacities.
The sluggish growth in the textile sector is having its impact on starch manufacturers. Many of them have already cut down on their capacity utilisation. The crisis has been aggravated by the recent spike in maize prices, which is the main raw material. Due to the widening of demand-supply gap of starch, the manufacturers are operating at a razor-thin margin. The smaller units are worst hit.
I. K. Sardana, the president of the All India Starch Manufacturers Association, told Business Standard that a drastic fall in the price of finished good coupled with revision in price of maize had put the manufacturers in a catch-22 situation.
“The maize prices that remained in the range between Rs 1,200 and Rs 1,300 per quintal in April and May this year have shot up from Rs 1,525 per quintal to Rs 1,575 per quintal, of late. At the same time, starch prices have dropped 10 per cent to 15 per cent. Starch prices slipped from Rs 22,000 per tonne to 23,000 per tonne six months to Rs 19,000 per tonne. If we buy maize at Rs 15,500 per tonne and incur a minimum conversion cost of Rs 4,000 per tonne, we do not earn any profit at the present price,” said Sardana.
In the last five years, there has been a substantial capacity addition in the industry. Of the total capacity of two million tonnes, 25 per cent is meant for exports. But the slowdown in Europe has created a big dent on the export demand. Exporters are now trying to liquidate their stocks in the domestic market that triggered a price reversal of starch here,” he added.
Indian starch makers have been advocating sowing of high quality maize seed so that the recoveries are better as in the case of US maize. But farmers prefer replanting old seeds year after year. This leads to low yield and poor recovery of starch, said Sardana.
The Indian starch industry is also facing a stiff competition from China. Offering starch at more competitive price than India, Chinese exporters have been able to grab the market share of Indian exporters, said Sardana.