Calcutta, April 16: Sugar prices are expected to remain firm at around Rs 37-40 per kg in sugar season 2017-18.

Despite the government's decision to allow duty free import of raw sugar up to 0.5 million tonnes, lower inventory because of a fall in production is expected to keep prices range bound, according to mills and market analysts.

The Indian Sugar Mills Association (Isma) has lowered its production estimate to 203 lakh tonnes from 213 lakh tonnes as sugarcane yield in Maharashtra, Karnataka and Andhra Pradesh in January and February was lower than expected.

"Sugar prices are expected to remain firm in sugar season 2017 because closing inventory is seen to be at an eight-year low following a fall in production in Maharashtra and Karnataka. That's despite the government's recent move to allow duty-free import of raw sugar of 0.45 million tonnes till June 12, 2017, and a fall in consumption because of demonetisation," research firm Crisil said in a report.

Crisil, however, added that the government's policy on imports would remain "a key monitorable" in the coming months.

With high cash accruals (because of stable prices) and no proposed greenfield expansion, Crisil also expects the debt burden of the mills to ease.

"According to Isma and Icra estimates, mills are likely to produce 203 lakh tonnes in sugar season 2016-17, 19 per cent lower than last year's 251 lakh tonnes. Moreover, mills have stopped crushing early this year because of insufficient availability of sugarcane in Maharashtra, Karnataka and Tamil Nadu. We expect the prices to remain firm in the coming months because of a deficient production forecast and diminishing stocks in the domestic market," said Ritesh Kumar Sahu, analyst (agri commodities) at Angel Broking.

"Domestic prices are likely to reign at Rs 37-40 per kg. If the import duty is scrapped, this will fall to Rs 29-30 per kg," said India Ratings and Research. There is a 40 per cent duty on sugar imports in India.

The research firm also expects northern millers to perform better with profitability 15-20 per cent higher than units in the south and west.

According to Isma data, sugar production in Uttar Pradesh is 9 lakh tonnes more than what it was last year.

Isma, however, expects sugarcane availability to improve next year in Maharashtra and mills in the west and south are likely to start crushing cane in the first half of October 2017.

"With Diwali now being earlier on October 19, 2017, the mills in north India will also start crushing by the latter part of October. Hence, sugar from the new season will be available in the market by the end of October," said Isma.