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Sugar stocks rally on higher ethanol demand

Suresh P. Iyengar | | Updated on: Apr 07, 2022

Sugar companies look to increasing distillery capacity to produce more ethanol

Sugar stocks continued its upward trend on the back of bright export opportunity and rising demand for ethanol blending with petrol.

Most of the sugar companies have announced ambitious plans to increase their distillery capacity to produce more ethanol.

Exports in the ongoing sugar season (ending September) is expected to hit a new high of 8.5 million tonnes, according to the Indian Sugar Manufacturers Association.

Sugar production till last month increased 11 per cent to 31 mt against 28 mt logged in the same period last year.

Shortfall in global sugar production

The record domestic production comes on the back of expected shortfall in global output due to 8 mt of lower production each in Brazil and Thailand, two of the world's largest sugar exporters.

The shortfall in global output has resulted in a sharp increase in l prices of sugar which, experts believe, is likely to sustain.

In a bid to cut excess inventory and have a stable pricing mechanism, the government incentivised exports and made realisation from ethanol production attractive.

S Ranganathan, Head of Research, LKP Securities, said the ethanol blending this financial year would be about 10 per cent in line with the government target of 20 per cent by 2025.

Ethanol blending

As sugar factories expand distillery capacities and oil marketing companies improve their storage infrastructure, the positive tailwinds of ethanol will boost the profitability of integrated sugar companies and ethanol plant producers, he added.

With soaring crude oil prices, the government advanced the 20 per cent ethanol blending target to 2025 from 2030, last June .

The current ethanol blending in petrol stands at about 9 per cent.

Late last year, the government increased the rate for ethanol from C-heavy molasses to ₹46.66 per litre from ₹45.69 per litre and that of ethanol from B-heavy to ₹59.08 per litre from ₹57.61 per litre.

Geographical advantage

Vikram Kasat, Head - Advisory, Prabhudas Lilladher, said as rising crude oil prices drive up freight rates, India is seen emerging as a preferred supplier of sugar over Brazil for consuming markets in West Asia, East­ Africa and South Asia.

The latest developments on the trade front could push the shipments to over 80 lakh tonnes in the current year, he added..

Published on April 07, 2022
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