The government's decision to hike the procurement price for ethanol by nearly 25 percent may provide much-needed relief for sugar mills grappling with record output of the commodity this year.
India is expected to produce 35.5 million tonnes of sugar in the current fiscal—the highest-ever—prompting a near 18 percent slide in retail prices over last year. The high output of the commodity from India and Thailand helped spur a 20 percent slump in benchmark global futures, Bloomberg reported in June citing government data.
Sugar mills will be prompted to divert sugarcane for ethanol production as the realisation will now be at a par with that of sugar, said Sabyasachi Mukherjee, an analyst with the ratings agency ICRA. “The move, largely awaited by the industry, will make ethanol production more viable for sugar millers.”
Atul Chaturvedi, chairman of Shree Renuka Sugars Ltd., concurred. He anticipated a drop in sugar production by six to seven-and-half lakh tonnes this year that can arrest the recent drop in retail prices.
Typically, one litre of ethanol is produced from two kilograms of sugarcane. Ethanol currently costs around Rs 23.5-24 per litre—which is 25 percent lesser than the realisation from sugar production.
Until now, molasses—the residue left behind after sugar is produced from sugarcane—was used to produce ethanol. The government has now permitted ethanol production from sugarcane juice, which can potentially lead to higher remuneration.
Realisation, though, may take at least a year as sugar mills have to invest in increasing capacity to produce ethanol, said Tarun Sawhney, vice chairman and managing director of the distilleries company Triveni Engineering and Industries Ltd. “The industry is already gearing up to meet the government's target of producing combustion fuels with 10 percent ethanol blends.”
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