The Union Government has maintained a hawkish approach to the 2023-24 sugar season following the sugar production deficit in Maharashtra and Karnataka. Following the Government’s decision to ban sugar mills from producing ethanol from sugarcane juice/syrup, the Order was amended within a week, and Oil Marketing Companies (OMCs) were allowed to revise the allocation of ethanol from sugarcane juice/syrup and B Heavy molasses. What will be the implication of the Order on this year’s ethanol blending programme, and how will this impact sugar mills that have invested in ethanol projects?
To understand the implications of the Government Order and get a thread-bare understanding of the domestic and global sugar industry in the current year, ChiniMandi spoke exclusively to Vijendra Singh, President (South Indian Sugar Mills Association). He said that It would be a challenge to achieve the previous season’s ethanol blending ratio of 12% in the current ethanol supply season, as sugar mills are the primary suppliers of ethanol. Further, he added that the industry is looking forward for having additional 1 million MT sugar for conversion to ethanol.
Q. We are getting various news on the sugar & ethanol sector in India. Please help us to understand the current situation.
A. The crushing season commenced in Oct 2023 and the sugar industry started production of ethanol with the focus of manufacturing Sugarcane Juice Ethanol for the Ethanol Blending Program. After looking at the sugar production numbers till Nov 2023 and in anticipation of lower production of sugar on account of less rains this year, the Government of India through its circular dated 7th December 2023 directed the sugar industry not to manufacture ethanol using Sugarcane Juice with immediate effect.
Q. What would be the impact of the GOI circular dated 7th Dec 23 on the industry? Will it cause turmoil in the industry?
A. The prime objective of this circular was to augment sugar production for domestic consumption. Also, to fill the gap in ethanol production, ethanol from grains like maize to be encouraged. However, this circular has been further amended on 15th December 2023, allowing 1.7 million MT of sugar for ethanol production.
Q. How Ethanol Blending Program will be affected?
A. Last year the sugar industry supplied 369.3 Cr Ltrs of ethanol and this year the quantity will shrink a lot. It will be a challenge to achieve last year’s blending ratio of 12% as about 80% of the ethanol is supplied by the sugar industry.
Q. Will it impact the economics of sugar & ethanol plants?
A: The sugar factories without distilleries or with small distilleries will not be impacted. However, sugar factories having only distilleries with small sugar production capacity will be impacted adversely. A major impact will be seen on the sugar factories which have invested heavily in building large distillery capacity.
Q: What would be the impact on the sugar prices?
A: When we started the crushing season in Oct 2023, the Indian sugar balance sheet was tight as stocks were low. The industry was hoping for a good sugar price in the year 2023-24 but now the price will soften a bit, but I believe on the macro level things will not change and the situation will slowly improve.
Q: What do you expect going forward?
A: The government already allowed the production of Sugarcane Juice & B Heavy ethanol but with a cap to divert only about 1.7 Million MT of sugar. I believe when the production numbers of December will come out, the cap will be reset and a proper balance between the production and demand of sugar would be made to protect the interest of all stakeholders.
Q: Do you think India will export sugar this year?
A: If you carefully analyse the data, last year, we diverted about 4 million MT of sugar for ethanol, and this year with lower production, it was expected to divert about 3.2 million MT. Out of this 1.7 million MT already committed and I believe another one million may be allowed to be used for ethanol production as we progress in the season. Therefore, a reduction of only 0.5 -.07 million MT of sugar for ethanol would be seen, so we don’t see any surplus sugar that would be available for export.
Q: Why have global sugar prices crashed?
A: It’s not because of the possibility of export from India but because of the record sugar production of sugar in Brazil. The market sees no shortage of sugar and hence sharp correction has come, as Brazil season is closing in one week, the picture will be clear and we will see market stabilisation.
Q: Why so much noise?
A: I think the sugar industry has augmented the ethanol production capacity in the last year to over 8 Billion Liters per annum. In anticipation of the augmented capacity, the industry was looking forward to maximize the ethanol production in support of the ethanol blending program during this season. However, this cap has put the industry in a very tight situation.
Q. Do you think this scenario will derail the Ethanol Blending Program?
A. I think the situation will bring about a temporary pause on the Ethanol Blending Program. Once the season progresses, the Government will reassess the sugar production and may allow more sugar to be converted to ethanol. In the long run though, I do not expect any material impact to the Ethanol Blending Program, and it should continue to grow stronger as it provides multiple benefits to all stakeholders and our environment. Hence long-term goals of the Ethanol Blending Program will not get disturbed.
