ICRA: Government Support In The Form Of Continued Remunerative Ethanol Prices A Positive For Sugar Industry
The Cabinet Committee on Economic Affairs (CCEA), in a recent announcement, has increased the basic price of ethanol produced from B-grade molasses by Rs. 1.84/ litre (or 3.5%) while largely maintaining the ethanol price produced from C-heavy molasses and direct sugarcane juice for the procurement season 2019-20 (starting December 2019). According to ICRA, this continuance of government support through remunerative prices for ethanol is likely to support the profitability of the sugar industry.
Says Mr. Sabyasachi Majumdar, Senior Vice President & Group Head – Corporate Sector Ratings, ICRA, “With ethanol contributing nearly 10-15% of the sugar mills’ turnover for integrated sugar mills, remunerative ethanol prices are expected to encourage sugar mills to enhance the supply of ethanol for blending, thereby supporting their revenues, profitability and improving their ability to pay sugarcane farmers.”
The CCEA decision implies that the oil marketing companies (OMC)s will procure ethanol produced from C-grade molasses, B-grade molasses and sugarcane juice at the price of Rs. 43.75/liter, Rs. 54.27/liter and Rs. 59.48/liter in 2019-20 as against Rs. 43.46/liter, Rs. 52.43/liter and Rs. 59.10/liter in 2018-19 respectively, for blending with petrol. The price support aims at increasing the participation of the sugar mills in the Ethanol Blended Petrol Programme (EBP) by providing remunerative and stable prices to suppliers and reducing the dependence on crude oil imports. For the current 2018-19 season, the sugar mills have contracted to supply 2.6-million KL.
“In case of a sugar surplus scenario, the proposal to allow production of ethanol through B-grade molasses and sugarcane juice would support the sugar mills in producing ethanol from relatively higher sucrose content materials. While the realisations from pure ethanol production is lower than that the one obtained from sugar and ethanol as in conventional practice, this measure would allow the possibility of a reduction in sugar surpluses in overproduction scenarios, thus indirectly supporting sugar prices”, added Mr. Majumdar.
Ethanol is primarily produced using sugarcane molasses, directly dependent on the cane crushed by the sugar mills. Molasses, the by-product of cane derived during the process of manufacturing sugar, is used as an input for producing ethanol. The cane-based ethanol can be produced by three different ways — directly from cane juice, from B-grade molasses or from C-grade molasses.