According to ICRA, lifting the cap on sugar diversion and permitting the use of FCI rice by ethanol distilleries will likely lead to a significant increase in distillery volumes, which should enhance the performance of integrated sugar mills in second half of the year.
In its research report highlight, ICRA noted, “The Indian Sugar & Bio-energy Manufacturers Association (ISMA) projects gross sugar production to fall to 33.3 million MT in SY2025 from 34 million MT in SY2024. After considering the ethanol diversion of 4 million MT, since the Government has removed the cap on sugar diversion for ethanol, net sugar production is expected to decline to 29.3 million MT in SY2025.”
For the current fiscal, ethanol production capacity has risen to 1,589 crore liters from 1,380 crore liters in ESY2023. To meet the 20% blending target by 2025, an ethanol production capacity of 1,700 crore liters is required by that year, assuming plants operate at 80% efficiency and accounting for ethanol needs from other sectors.
In July, ethanol blending in petrol reached 15.8 percent, and cumulative ethanol blending during November 2023 to July 2024 touched 13.3 percent. For ESY2024, 647 crore litres of ethanol has been contracted, of which 461 crore litres have been supplied till July 2024. Notably, grain-based distilleries have contributed over 50% of India’s ethanol production recently. With the removal of the cap and the inclusion of FCI rice to support ethanol production, the blending percentage is expected to reach 20% by ESY2025.
“The Department of Food and Public Distribution (DFPD) has allowed grain-based distilleries to participate in FCI e-auctions for rice procurement of up to 23 lakh MT. This will support the increase in ethanol blending, along with supporting the profitability margins of multi- feed/grain-based distilleries, since FCI rice is available at a lower rate and provides higher yield than damaged food grains (DFG) or maize,” ICRA stated.
ICRA’s report states, “These recent developments enhance the prospects for integrated sugar mills by helping to reduce the closing sugar stock for SY2025 and stabilizing sugar prices, thereby supporting mill profitability and timely payments to farmers. Additionally, the inclusion of FCI rice will aid in increasing ethanol blending and improving the profitability of multi-feed/grain-based distilleries. However, challenges such as ethanol availability across states, infrastructure adequacy, and timely adoption of E20 compliant vehicles will impact the achievement of the 20% blending target.”
