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Suresh P. Iyengar

Mumbai, Oct 10 Sugar stocks on the BSE made a sweet recovery after the Government rolled out new ethanol policy.

Apart from making 5 per cent ethanol blending with petrol mandatory, the Government has allowed sugar mills to produce ethanol directly from sugarcane juice rather than the conventional method of producing it through molasses.

Shree Renuka Sugar topped the list of major gainers with 11.84 per cent to Rs 814, Shakthi Sugar was up 11.19 per cent at Rs 84, Thiru Arooran Sugars gained 10.11 per cent at Rs 114, Dhampur Sugar gained 10.28 per cent at Rs 62, Uttam Sugar gained 9.73 per cent at Rs 89 and Bajaj Hindustan went up 8.38 per cent at Rs 170.

However, analysts feel that the rally will be only for short-term, as the bearish fundamentals have not changed.

“The technology to produce ethanol from sugarcane juice will cost Rs 100 crore for 25,000 tcd (tonnes crushed per day).

Sugar companies at present are saddled with huge arrears to farmers due to high cane prices,” said Mr Bavesh Gandhi, Research Analyst, India Infoline.

Sugar companies opine that ethanol capacity was not a problem but energy retailers had been slow to adopt the green fuel. “Even at the present ethanol capacity, sugar companies can meet 10 per cent blending programme.

State-owned oil companies issued tenders to buy ethanol in November, but purchases have been disappointing,” said a sugar company official. Refiners have agreed to buy ethanol from sugar mills at Rs 21.5 per litre for three years.

The Government plans 10 per cent blending mandatory from October 2008.

The Government has earlier announced series of sops to sugar sector, which is facing glut in production.

The Government doubled sugar buffer plans to 5 million tonnes (mt), subsidised exports and directed banks to offer short-term soft loans to sugar companies to meet their commitments to sugarcane farmers.

The Government in April announced a freight subsidy of Rs 1,450 per tonne for a year, but later, extended it to April 2009.

Sugar output is expected to touch a record 29 mt in the season ending September 30, 2008, compared with the demand of 19 mt.

The closing stock for sugar season ended September 30, 2008 was around 11.9 mt, enough to meet demand for more than seven months.

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