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Informist, Friday, Aug 23, 2024

MUMBAI – Ethanol blending rate demand is likely to continue increasing in the current ethanol supply year ending October, despite restrictions on the diversion of sugar for ethanol production, India Ratings and Research said in a release today. There has been a jump in supply from grain-based feedstocks, especially maize, which led to a blending rate close to 14%, marginally short of the government’s target of 15%, it said.

Ethanol demand for blending with petrol rose 19% on year to 4.8 bln ltr in the first nine months of the ethanol supply year, indicating a blending ratio of 13.3%, it said.

While the target of 20% ethanol blending in petrol by 2026 still appears ambitious given the feedstock availability and vehicle compatibility-related challenges, the ethanol segment could witness double-digit growth even with a blending rate of 16-17%, it said.

The over 200% increase in the blending rate between ethanol supply years 2019-20 and 2022-23 was largely driven by sugarcane sources, and growth over 2023-24 and 2026-27 is likely to be led by grain-based distilleries, the rating agency said.

Grains will drive ethanol production growth over the medium term. After a relatively slow take-off, grain-based ethanol production capacities grew 30% on year in ethanol supply year 2022-23 and could rise further to 6.5-7.5 bln litres by 2025-26 to 2026-27, potentially contributing to 60% of the total ethanol demand for fuel.

However, given the feedstock integration and high correlation between input and product price movements, the profitability of cane-based ethanol is likely to remain more stable than that of grain, which remains susceptible to volatility in input prices, India Ratings and Research Director Khushbu Lakhotia said.

Prices of ethanol from cane largely move in tandem with the fair and remunerative prices of cane fixed by the government, leading to inherent stability in profitability. However, input cost prices of grain-based ethanol are based on market demand-supply dynamics, making it inherently volatile, India Ratings said.

Although the year-to-date blending ratio is lower than the government’s targeted rate of 15%, the blending rate has been above 15% since May with an increase in the production of ethanol from grains, it said. 

The government has restricted the diversion of sugar towards ethanol production to only 1.7 mln tn, based on initial expectations of a fall in the gross sugar production in the current sugar season ending October. India Ratings said the share of sugarcane-based feedstock for ethanol blending will fall below 50% in the current ethanol supply year for the first time.  End

Reported by Taniva Singha Roy

Edited by Saji George Titus

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