India, the world’s second-largest sugar producer, is likely to increasingly divert its surplus output away from exports towards domestic supply of green fuels, according to Phillip Capital.
While an export subsidy has helped domestic sugar mills to ship out the production that is not consumed at home, the government has said that the policy support will be reduced to Rs 6/kilogram from Rs 10.5 in the current September-October season.
In effect, this will translate into a total subsidy of 35 billion rupees for total exports of 6 million tonnes. However, going forward, the government has indicated that even this subsidy will be discontinued.
Therefore, a recent policy that gives flexibility to sugar mills for production of ethanol from molasses as well as cane juice would provide a stream of additional revenues to the sector.
Currently, the government policy provides for 10 percent blending of ethanol with gasoline, though the levels achieved are only about 5 percent. Further, the government has recently advanced a programme for a 20 percent blending target to 2025 from 2030.
Even with greater flexibility provided in use of feedstock material, domestic sugar mills’ production capacity is sufficient only to meet 12-14 percent blending.
The government has announced interest rate subsidy for five years as well as faster environment clearances for setting up the additional distillery capacity programme that will be required for the green fuels blending programme.
“We expect incremental production of ethanol from B-heavy molasses and directly from juice,” Phillips Capital said.
It added the additional production of ethanol from molasses and cane juice has the potential to balance the supply and demand in the domestic sugar market. Two of the largest sugarcane producing states, Maharashtra and Uttar Pradesh, will be able to meet 65%-70% of ethanol supply.
Sugar mills have been burdened with losses as they have to pay higher fixed sugarcane costs to farmers, while prices of the sweetener have remained within a broad range of Rs 35-45/kilogram over the last couple of years. A glut of sugar means that prices are unlikely to go up even this year.
While the ethanol programme will help relieve the financial stress, around 7 billion litres of the green fuel out of around a total of 12 billion litres will be supplied by sugar mills, the rest of the volumes will come from grain-based industries, Phillips Capital said.