Informist, Saturday, Dec 9, 2023
By Sayantan Sarkar and Afra Abubacker
MUMBAI – The government's latest move to stop the production of ethanol from sugarcane juice has left the sugar industry dumbfounded. The latest diktat will leave sugar mills struggling to make good on tenders they have already signed to supply a substantial amount of ethanol, say market participants.
The government on Thursday directed mills to not use sugarcane juice for ethanol production in the 2023-24 (Nov-Oct) ethanol supply year, while saying that supply of the biofuel from B-heavy molasses can continue only for the amount contracted so far by the oil marketing companies.
However, the industry is at sea over the practical details of the policy that still need to be ironed out. The notification, unlike for B-heavy molasses, does not detail what will happen to the sugarcane juice that has already been contracted for ethanol production.
"What is going to happen with the undelivered cane juice from the balance contracts...whether they will get moved on to B-heavy is not clear," said Atul Chaturvedi, executive chairman of Renuka Sugars Ltd. "What has come out is only the broader picture and the nitty-gritty needs to be worked out," he added.
Some say that with the change in policy, the remaining amount of sugarcane juice that was contracted for the production of ethanol may now be "cancelled" altogether.
According to industry sources, so far in the ethanol year that began in November, oil marketing companies have floated the first tranche of the tender of 5.6 bln ltr for which around 3.2 bln ltr of ethanol was to be supplied by the sugar sector.
Of the 3.2 bln ltr, around 1.2 bln ltr was contracted from B-heavy molasses, said an industry source, who did not wish to be named.
Sugarcane juice, B-heavy molasses, and C-heavy molasses are sugarcane by-products obtained during sugar extraction. Sugarcane juice has the most sugar content, followed by B-heavy molasses and C-heavy. Currently, ethanol supply from C-heavy molasses is ongoing without any restrictions.
However, only 300 mln ltr of ethanol has already been supplied from sugarcane juice, and the rest 1.7 bln ltr contracted is likely to be cancelled, the industry source said.
"We have sought clarity from the Centre on what the mills will do with the remaining sugarcane that has been contracted for the supply of ethanol," said Prakash Naiknavare, managing director of National Federation of Cooperative Sugar Factories Ltd, adding that if these orders are cancelled, it "won't be fair" to the industry.
The government's decision has also come at a time when sugar prices have firmed up on concerns of falling production in the 2023-24 (Oct-Sep) sugar season.
Last month, the National Federation of Cooperative Sugar Factories Ltd estimated the country's net sugar production in the current sugar season at 29 mln tn, down 12% from 33 mln tn last year.
"But our back of the envelope calculation is that this decision of the government (to restrict mills from using sugarcane juice for ethanol supply) will probably end up saving around 1.75 mln-2.00 mln tn of (additional) sugar...," said Chaturvedi.
The industry now estimates sugar production in 2023-24 at around 31.5 mln tn. Asked about the impact of the latest development on prices, Chaturvedi said, "I don't visualise a big effect on the prices...some correction will happen as crushing season is currently on."
Praful Vithalani, the chairman of All India Sugar Trade Association, said, "pricing will depend on the (monthly) sales quota that the government releases every month". For December, the government had set the sugar sales quota at 2.4 mln tn, which traders said is more than enough to meet demand for the month.
ETHANOL BLENDING
Even as the country enjoys the sudden comfort of adequate sugar in the market, the government's ambitious target of ethanol blending may have taken a backseat.
To reduce dependence on crude oil, the government has been implementing a programme for ethanol blending with petrol throughout the country, under which oil marketing companies sell petrol blended with ethanol.
India achieved 12% blending in the 2022-23 ethanol year ended October, and plans to achieve 15% blending of ethanol with petrol in 2023-24 (Nov-Oct).
The industry feels that achieving 15% blending of ethanol with petrol will be a difficult proposition in 2023-24, and even meeting last season's 12% blending figure may be a massive challenge.
Unlike sugar prices that vary on demand and supply, ethanol prices are dependent on government policies. At the start of every ethanol supply year in November, the government announces revised prices of ethanol derived from feedstocks, including sugar and grains.
For the 2023-24 ethanol year, the government is yet to announce the revised rates of the biofuel derived from sugarcane by-products.
Currently, the price of ethanol derived from 100% sugarcane juice is 65.61 rupees a ltr, from B-heavy molasses 60.73 rupees, and from C-heavy molasses 49.41 rupees a ltr.
Asked if the Centre would now revise prices of ethanol from sugarcane, Chaturvedi said, "...cane juice ethanol is suddenly out of fashion even after contracts have been signed, so we don't know how things will pan out". Other industry players too sounded uncertain. End
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