MUMBAI: The recent hike in the ethanol prices will be positive for the sugar industry in the light of prevailing sugar surplus situation in the country, according to a report.
The Cabinet Committee on Economic Affairs (CCEA) has recently increased the basic price of ethanol produced from C-heavy, B-heavy molasses and sugarcane juice by Rs 1.94 per litre, Rs 3.34 per litre and Rs 3.17 per litre, respectively, for the ethanol supply year starting December 2020.
"With ethanol contributing nearly 10-15 per cent of the sugar mills' turnover for integrated sugar mills, remunerative ethanol prices are expected to encourage sugar mills to enhance the supply of ethanol for blending, thereby supporting their revenues, profitability and improving their ability to pay sugarcane farmers," Icra Ratings Senior Vice President and Group Head Sabyasachi Majumdar said.
The increase in the ethanol prices from B-heavy molasses will enable the mills to produce higher ethanol from these high sucrose content materials, and thus support in reducing the pressure from the surplus sugar stocks in the domestic market and indirectly supporting the sugar prices, he pointed out.
"In addition, we expect the operating profitability of the distillery division to increase by around 250-300 bps. This could vary depending on the diversion of B-heavy for ethanol production," he said.
The CCEA has approved an increase in ethanol price derived from different sugarcane-based raw materials under the Ethanol Blended Petrol (EBP) Programme for the forthcoming ethanol supply year 2020-21 from December 2020 to November 2021, Icra said in the report.
The price of ethanol from C heavy molasses has been increased from Rs 43.75 per litre to Rs 45.69 per litre, the price of ethanol from B heavy molasses rose from Rs 54.27 per litre to Rs 57.61 per litre and the price of ethanol from sugarcane juice climbed to Rs 62.65 per litre from Rs 59.48 per litre.
According to the first advance estimates of Indian Sugar Mills Association (ISMA), the sugar production was revised upwards by 1.7 per cent to 31 million tonne in SY2021, compared to the preliminary estimates given in June 2020, the report said.
This production number has been arrived at after adjusting the impact of the diversion of B-heavy molasses and sugarcane juice for ethanol manufacture, it added.
Icra expects the sugar consumption to get back to around the 26 million tonne levels in SY2021.
Assuming that the government continues to support exports, considering the surplus scenario in the domestic market, exports are likely to be around 5.5 million tonne, largely similar to the SY2020 figures, it pointed out.
The closing stocks are expected at around 10.0-10.5 million tonne for the SY2021 season, which is higher when compared to the normative sugar stock levels.
Given the sugar surplus scenario in the domestic market, any significant increase in sugar prices is ruled out in the near term.
"The continued government support for the sugar industry remains critical for supporting the profitability of the sugar companies and curtailing any significant increase in the cane dues going forward, given the continuing sugar surplus scenario.
"The government support in the form of subsidies for sugar exports, creation of buffer stock and continued support with minimum support price (MSP) for sugar would be critical going forward," Majumdar said.