Govt’s ethanol flip-flop makes sugar mills bitter

livemint.com:

₹4,440 crore were provided to mills to set up ethanol capacity. This led to a flurry of investments in the sector. As ethanol production and procurement picked up, so did the blending percentage in gasoline.

At the same time, the profitability of sugar mills also improved. “Sugar mills were making less profits before they diversified into the ethanol segment. Previously, sugar mill margins were largely driven by sugar prices.

Any fluctuation in sugar prices would lead to fluctuation in sugar margins. However, after they started selling ethanol, their margins have improved considerably," said Crisil’s Sharma. How considerable is it? While the minimum support price of sugar is fixed at ₹31 per kg, distilleries get ₹49.41 per litre for ethanol produced from C-heavy molasses, ₹60.73 per litre from B-heavy molasses and ₹65.61 per litre from sugarcane juice or syrup.

In terms of outright operating margins, in sugar season 2023, selling sugar directly in the market fetched just 3.7%, while distilleries earned 13.73% from ethanol. “Ethanol fetches differential pricing based on the feedstock used for its production," said ISMA. “Sugar is produced during 5-6 months in a year, while it is sold for 12-14 months, while ethanol fetches revenue within a few days of supply and helps in maintaining liquidity." Will the policy flip-flop and the unexpected cap on diversion of sugar stocks for ethanol dampen the spirits of the industry? The prospect of similar curbs in the future is certain to plant doubts in the minds of potential investors, at least in the near term.