Rising sugar prices prompt mills to favor sugar over ethanol
Rising sugar prices are prompting Indian mills to favour sugar production over ethanol, with industry executives expecting restrictions on B-heavy molasses and sugarcane juice diversion. Balrampur Chini Mills and E.I.D.-Parry indicated plans to maximise sugar output, while analysts expect higher margins despite potentially lower ethanol production.
A sharp rally in sugar prices have prompted mills to favour sweetener over ethanol to shore up their margins, companies flagged in their quarterly earnings call earlier this month. Executives are expecting a policy intervention restricting diversion of B-heavy molasses for ethanol production.
B-heavy molasses contains higher fermentable sugars compared to traditional C molasses, allowing for increased ethanol yields of around 25 per cent.
“In this environment, maintaining the right balance between sugar availability and ethanol diversion will be important for stable prices and healthy industry economics,” said Vivek Saragi, Chairman and Managing Director of Balrampur Chini Mills (BCM), in his opening remarks on the earnings call on August 12.
Because domestic sugar inventories are extremely tight, the Saragi said it is highly reasonable to assume that the government will not allow sugarcane diversion towards B-heavy molasses or sugarcane juice for ethanol in the upcoming season.
Restricting B-heavy means the company will produce more sugar, allowing them to make more money from both higher sugar sales volumes and firming sugar prices, which should more than offset the negatives of the distillery restrictions.
Current sugar prices are hovering around INR 46 per kg (ex-mill), which makes manufacturing of sugar the most viable option among various products/by-products of sugarcane, analysts said.
As of August 17, whole rates have been around Rs45.2–45.25/kg (Rs 4,520–4,525 per quintal), as deficient rains in the key sugarcane producing regions, Maharashtra and Karnataka, impacted production, while domestic demand remained strong.
For the 2025–26 sugar year, India’s overall sugarcane diversion towards ethanol is estimated at 3 million tons, with about 0.9 million tons directly supporting the government’s E20 blending program.
Management of E.I.D. –Parry also signalled on leaning toward maximizing sugar output over ethanol/ENA volumes in the near term.
“Obviously, it makes sense to produce more sugar at this current pricing. We will evaluate our option of producing ethanol, ENA and sugar from which feedstock is a constant review mechanism where we have, and we try to maximize our margins,” said Ashiq J, Chief Operating Officer, E.I.D. –Parry.
Due to low local feedstock availability, the company has had to import a large volume of feedstock to run its Tamil Nadu distilleries. Going forward, they intend to take a more measured approach to importing feedstock based on market conditions to optimize working capital, Ashiq added.
“In the next crushing season, sugarcane diversion mays be allowed only for c-heavy ethanol to give way for higher production of sugar (positive) and lower ethanol production. While this may lead to some sort of correction in sugar price in the future, but since the base price of sugar has moved up firmly, the net outcome will be positive for sugar mills. Millers may also resort to early sowing to cash in on higher sugar price,” Elara analyst Prashant Biyani wrote in his note on August 12.
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Source : Money Control
