India may restrict sugarcane ethanol production as sugar prices hit record high

INDIA – India is considering restricting the amount of sugarcane diverted to ethanol production in the season beginning October as the government seeks to increase domestic sugar supplies and ease record prices, according to sources cited by Reuters. 

Reduced rainfall in Maharashtra and Karnataka, India’s largest sugarcane-producing states, has raised concerns about sugar production for the next season. Sources familiar with the matter said prioritising sugar production over ethanol could help India avoid sugar imports as supplies tighten. 

A decision on the proposed restrictions could be made by the end of next month, the sources said. 

Indian sugar mills diverted about 3 million metric tonnes of sugar, equivalent to roughly 10% of total production, to ethanol during the current season, which ends in September.  

Restricting the diversion next season could add a similar volume to domestic sugar supplies, potentially offsetting an expected production decline caused by weak rainfall. 

Sugar prices in India have increased about 10% over the past month to a record high and are expected to remain elevated for at least three months as supplies tighten and demand rises during the country’s festival season. 

Industry estimates indicate that sugar inventories held by mills at the beginning of the new season on October 1 could fall to approximately 3.5 million tonnes, the lowest level in more than 30 years. Lower production during the current season, together with exports of about 800,000 tonnes, has contributed to tighter supplies. 

Under the proposals being considered, mills could be asked to stop producing ethanol from sugarcane juice and B-heavy molasses, a byproduct containing relatively high levels of sugar. Mills would instead mainly produce ethanol from C-heavy molasses, which remains after most sugar has been extracted. 

The sources said the proposed changes could add sugar to the domestic market while allowing India to maintain its ethanol-blending programme. To keep the government’s target of blending 20% ethanol into petrol on track, greater quantities of corn and rice would be used for ethanol production. Supplies of both grains are considered ample. 

The ethanol allocation for the sugar industry for the marketing year beginning November is expected to be finalised before the season starts, after which state fuel retailers will issue tenders for ethanol purchases. 

New Delhi has already banned sugar exports and imposed limits on stocks held by dealers last month. 

Industry officials said the proposed restrictions were unlikely to significantly hurt sugar mills because producers were expected to earn more from selling sugar than from diverting sugarcane to ethanol. 

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