CALCUTTA, Feb 5: An American bank has decided to mobilise Rs 145 crore from jute mills which have made huge profits during the past two to three months.Sources in the bank said that the top executives had met early this year and decided to focus on the jute sector and mobilise the targeted amount."We have learnt from the industry sources that the jute mills have become extremely cash-rich as they are making huge profits at the moment. So to tap this sector the bank has set a target of Rs 145 crore for mobilisation during the 1998 calender year,"thes banking sources havse emphasised.
On an average the jute mills are making profits of around Rs 3.5 to 4 lakh a day in the production of A Twill and B Twill jute bags, the sources added.Banking sources said that "a jute mill of 100 tonnes capacity per day running with a capacity utilisation of around 70 per cent is making profits of more than Rs 3.5 lakh just by producing B Twill jute bags which are cheaper than A Twill bags."
Business developmentexecutives of this foreign bank have already started tapping the jute mills with some success. "With a target audience already set in front we have started the process and we have received a good response, the sources clarified.
Till now we have done a fair bit of funds mobilisation from the jute mill owners," a business development executive told The Financial Express.The secondary target of these executives are the raw jute brokers who also have a close alliance with the jute mill owners. "The raw jute traders and brokers generally have close links with the jute mill owners, the added.Even they are making huge profits as the price of raw jute is just hovering around the minimum support price and payments are made to the farmers mostly after three months," the executive said.
A jute industry analyst agreed to the views of the bank's executives and worked out the profits of the jute mills. "The average quality of raw jute used for sackings is either TD-5 or TD-4 and it is available at Rs 5,700 and Rs6,300 a tonne respectively. On the other end, one tonne of A-Twill jute bags costs around Rs 21,000 and B-Twill jute bags Rs 19,900. The cost of converting raw jute into jute sackings is Rs 7,000 to 7,500 for B-Twill jute bags and another Rs 500 more for A-Twill bags, the sources added.
"So it costs around Rs 14,500 to make a tonne of A-Twill bags which are sold at Rs 21,000. The profit is Rs 6,500 or over 44 per cent. For B Twill jute bags the production cost is Rs 14,000 a tonne, which are picked up by the directorate general of supplies & disposals at Rs 19,900 and the mill's profit is Rs 5,900, or more than 42 per cent. "Therefore an average 100 tpd mill running with a capacity utilisation of 70 per cent and producing only B Twill bags records a profit of Rs 4,13,000 at the end of a day," the analyst hasnoted.
The business development executive added that this scenario is unlikely to change in the next couple of months as there is a huge demand for jute bags from the foodgrain and sugar sectors andthe price of raw jute will not rise sharply because of its abundance now.
A raw jute trader said that in the 1996-97 jute season the crop was over 100 lakh bales.
The crop in that year was about 25 per cent more than what the industry needed and the surplus was carried over to this yea, thes trader avered."This year (1997-98), there is another bumper crop of about 98 lakh bales, which leaves the industry with a stock of about 120 lakh bales. Naturally, farmers are trying to sell off the raw jute.
This has kept the jutes prices down and I do not think it will rise sharply and cross the Rs 1,000-a-tonne mark in the next few months," the trader clarified.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
