The Hindu Business Line : Rising molasses prices hit liquor, chemical firms

NOT SO SWEET
Molasses prices rule at about Rs 6,000/tonne.
Exports are expected at 0.85-0.9 million tonnes.
Output this year likely at 12 million tonnes.

Harish Damodaran

New Delhi, Sept 9 The tight supply position in sugar is spilling over to molasses and rectified spirit, with prices going through the roof much to the discomfiture of liquor companies and alcohol-based chemical manufacturers such as India Glycols and Jubilant Organosys.

Molasses prices are now ruling at about Rs 6,000 a tonne ex-factory in Maharashtra and Uttar Pradesh, with spirit selling at Rs 36-38 a litre. This is as against corresponding rates of Rs 60-70 a tonne and Rs 12-14 a litre at the start of the 2007-08 sugar season (October-September).

“We are at the end of the season. But even after the new season takes off, I don’t see molasses going below Rs 4,500-5,000,” said Mr Gautam Sharma of Mumbai Logistics Company, an alcohol and molasses trader.

Cos turn to Imports

The only stabilising factor as of now seems to be imports. Jubilant, India Glycols and Laxmi Organic Industries are said to have already contracted around 35,000 tonnes of denatured hydrous spirit from Brazil at $720-735 a tonne, cost & freight. The shipments are slated to arrive by end-October.

“Imports may have a sobering impact, but the overall availability situation will remain tight,” Mr Sharma added.

This is quite a contrast to the scenario prevailing in August to October last year, when molasses dipped to as low as Rs 300-400 a tonne in Maharashtra.

With expectations of a bumper cane crop, domestic buyers kept their tanks empty and sought to defer purchases till the season began.

Prices soar

Prices, then, started rising gradually to Rs 900 a tonne by end-November, Rs 1,200 in December, Rs 1,600 in January and Rs 2,100 by mid-February.

This was also the time when exporters began stepping up procurement to take advantage of the growing demand from the European cattle-feed industry.

For the latter, molasses from cane were an alternative to that from increasingly unaffordable US corn, courtesy bio-fuel diversion.

While molasses were being shipped out from India at about $46 a tonne free-on-board last December, these had by July touched $115 a tonne.

Simultaneously, domestic prices crossed Rs 4,000 a tonne in May and Rs 5,000 by July and are since trading at Rs 6,000-plus levels.

Molasses Exports

During the current season, molasses exports are expected at 0.85-0.9 million tonnes (mt). While Imcola Exports Ltd, Midex Global and others have received no-objection-certificates from State Governments for export of up to 1.4 mt till March 31, 2009, the shipments may not fully materialise because of the present high domestic realisations.

Moreover, domestic prices may continue to rule firm because of a likely drop in output. During the 2006-07 season, sugar mills crushed 278.87 mt of cane and produced a record 13.09 mt of molasses at 4.7 per cent recovery.

Tighter Supply

With the quantity of cane crushed falling to 260 mt in 2007-08 and a projected 210 mt in 2008-09, the corresponding molasses output works out to 12 mt and below 10 mt, respectively. The latter would translate into around 2,300 million litres of alcohol, taking an average 230 litres for every tonne of molasses.

On the demand side, the annual requirement of potable alcohol makers is estimated at 750 million litres (ml) and that of chemical units at 700 ml. In addition, 500 ml are required by oil companies for blending of five per cent ethanol in petrol, taking the total demand to 1,950 million. That makes the supply-demand balance equation somewhat on the tighter side.

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