Examining the hypothesis of the growth of the profitability of sugar factories/increasing the global price of sugar; Threat or opportunity?

According to Tejarat News, a look at sugar transactions indicates that this product has approached the $740 level in the past few days. The sugar industry in Iran’s stock market has also taken advantage of this opportunity to a high extent; So that the index of this group has grown more than 18% in the last 18 trading days.

But the issue that should be paid attention to is the story of the possibility of increasing the cost price of sugar companies. At first glance, analysts have raised the possibility of increasing the profitability of the companies of this group. Because they believe that since about 40% of domestic sugar needs are met by importing raw sugar, with the growth of the global price of this product and including overhead costs, the total price of sugar production in Iran will increase sharply and reach 33 thousand Tomans. . Therefore, analysts have raised the possibility of increasing the sales rate of this product and naturally increasing the profitability of sugar companies.

Why is the increase in the price of sugar a threat?

Since the Iranian sugar market is not a sugar exporter, it cannot generate income from the growth of the global price of this product. In this way, sugar companies should only hope to obtain permission to increase the price of sugar in the Iranian market under the pretext of price growth. But the opposite party, the government, has always tried to suppress the price of basic goods and it is unlikely to raise the price of sugar in line with the global prices of raw sugar (raw material).

Also, in the last month, the capital market route was separated from 28 thousand and 500 Tomans dollars, and Kandis were forced to buy their raw material with 38 thousand Tomans dollars. In this way, the cost price of the companies in the sugar industry will increase in two ways. Therefore, it is unlikely that sugarcane will benefit from the record-breaking world price of sugar.

What will happen to the sugars?

Based on what was said, do sugar companies suffer losses? The answer is no. It must be said that at the end of the current season, the sugars will not only not lose, but will also face a jump in profitability. But the reason for the growth of profitability is not the increase in the global price of sugar!

If the process of sugar production is examined, it is clear that the beet crop is harvested in two seasons, August and September, and this issue leaves the hands of the companies open for production. This issue also causes big leaps in the profitability of sugar factories.

The chart below shows the gross profit of Qazvin Sugar Company in different seasons. As it is known, the profit of this sugar company reaches its peak in the second and third seasons.

Also, usually at the end of summer, after the announcement of the wheat price for the new crop year, the beet and sugar prices for the next production year are also announced. This issue has always caused an increase in demand in the sugar group. Therefore, it should be said that the quarterly financial statements of sugar companies will most likely report the profitability of the companies, but the reason for this will not be the growth of the global price of sugar. Finally, it should be said that the profitability of sugar factories due to the increase in the price of sugar in the world markets depends on obtaining permission to increase the sales rate from the government.

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