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Informist, Friday, Jan. 31, 2025

 

By Afra Abubacker

 

NEW DELHI – Disappointed at the ethanol procurement prices declared by the government, market participants said mills are likely to supply less ethanol to oil marketing companies in 2024-25 (Nov-Oct). Though mills have inked ethanol contracts with oil marketing companies, supply default rates are likely to increase to 8-10% from 4-5% last year, they added.

 

"(Ethanol supply) Tender is floated with no price hikes and bids are made with expectations of hikes. But there was no hike (for ethanol made from cane juice and B-heavy molasses)," Deepak Ballani, director of the Indian Sugar and Bio-energy Manufacturers Association told Informist. "It looks like there will be less ethanol supply this year. There is a 3% penalty on defaults. The industry is squeezed from both sides," he added.

 

Citing the rise in production costs, mills have been demanding a hike in ethanol prices. However, the Cabinet, on Wednesday, hiked prices of ethanol made only from C-heavy molasses by 3% to INR 57.97 per litre. Ethanol made from sugarcane juice is priced at INR 65.61 per litre and B-heavy molasses at INR 60.73 per litre, unchanged from 2022-23. Sugar mills manufacture ethanol and their major buyers are oil marketing companies that use it for blending with petrol to make it a greener fuel.

 

"Industry feels let down by the government. In the last two years, there was an 11.5% hike in FRP (fair and remunerative prices of sugarcane). The government is controlling input rates. But without hiking ethanol prices, who is going to bear the hike in FRP," Ballani said. Since 2022-23, the government has increased twice the fair prices of cane, firstly to INR 315 per 100 kg and then to INR 340 per 100 kg. Sugar mills buy cane from farmers at the Centre-fixed fair prices.

 

According to ISMA, ethanol prices should have a formula-based link with fair prices of cane to maintain financial viability and ensure timely payments to farmers. The association has urged the government to revise prices of ethanol made from cane juice and B-heavy molasses.

 

However, the government is not likely to hike ethanol prices any further this season, farm expert G.K Sood said. "The government thinks current ethanol prices are adequate even with the increases in cane prices," he said. However, at current price levels, mills are likely to reduce sugar diversion for ethanol. ISMA sees sugar diversion for ethanol production at 3.75 million tonnes, down from its November estimate of 4.0 million tonnes. "Total sugar diversion figures have been adjusted based on the state-wise ethanol supply allocations and expected (cane) crush," ISMA said.

 

The highest default is likely to be in B-heavy molasses as mills may prefer making sugar over ethanol, Sood said. On pricing of ethanol from grain-based feedstock, Sood said, "Unlike sugarcane, the input cost of damaged food grain or maize is largely the same as last year." Moreover, the government has asked Food Corp. of India to sell rice at a subsidised rate of INR 2,250 per 100 kg, way below the economic cost of INR 3,975 per 100 kg.

 

Of all the feedstock, the government has only increased rates of ethanol made from C-heavy molasses in 2024-25. The price of ethanol made from FCI surplus rice at INR 58.50 per litre remains unchanged from last year.

 

However, the industry pointed out that the supply order so far from C-heavy molasses was insignificant at 94.25 million litres. Meanwhile, about 1.95 billion litres of ethanol is set to come from cane juice and 1.32 billion litres from B-heavy molasses. Apart from the blending demand, C-heavy molasses also has other industrial demands from chemical, pharmaceutical, cosmetics, and alcohol industries, Sood said.

 

So far, ethanol orders this year stand at 9.30 billion litres and India needs 10.16 billion litres to achieve 20% blending with petrol by 2025-26 (Nov-Oct). In 2023-24, India achieved 14.6% blending. Of the orders for 9.30 billion litres of ethanol, grain-based units will supply nearly 64% and sugar-based distillers 36.3%. 

 

On Wednesday, oil companies floated a tender for 1.24 billion litres of ethanol made from C-heavy molasses and FCI's surplus rice. The tender is active till the coming Wednesday. The market expects grain-based distillers to bid actively amid the availability of cheap FCI rice. 

 

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Since the realisation on sugar sales has improved after the government lifted the ban on sugar exports in January, mills are likely to use cane juice and B-heavy molasses to make sugar, market participants said. Prices of the sweetener, which were at INR 37-INR 38 per kg in December, increased to around INR 40 per kg in January.

 

In the last two years, the government has only incentivised ethanol production from C-heavy molasses, which has the least sugar content compared with cane juice and B-heavy molasses. Asked if the government decision on ethanol prices was because of lower sugar production this year, market participants said there was enough sugar available in the country. "Yes, the (sugarcane) crop is lower than last year. But, there is absolutely no worries about sugar availability. Sugar consumption is only 29 million tonnes," Ballani said. 

 

ISMA has estimated sugar production in 2024-25 (Oct-Sep) to fall to 27.3 million tonnes from 31.9 million tonnes in the previous year. But the country is likely to have a comfortable stock on account of higher opening stocks. The total sugar supply in this year seen around 39 million tonnes, higher than the 29 million tonnes consumption requirement.

 

However, according to Praful Vithalani, the chairman of All India Sugar Trade Association, the government may have been alarmed by warnings of lower closing stocks of sugar in 2024-25 (Oct-Sep). The association has projected the ongoing season to close with 4.5 million tonnes of sugar against 7.9 million tonnes last year.

 

However, Sood said that the government will keep the market well supplied by increasing the monthly sales quotas. "If needed, the government can pinch on the opening stock of next season," Sood said.  End

 

Edited by Akul Nishant Akhoury

 

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