Sugar mills demand 40% hike in ethanol price

Concerned with the abnormally high prices of molasses, sugar mills have asked oil companies to raise the ethanol procurement price by 40 per cent for the recently-floated tender.

Two years ago, the government and sugar industry representatives had fixed the ethanol price at Rs 21.50 per litre, which the industry is demanding to be raised to Rs 30 per litre for the active tender contracts. In the over-the-counter (OTC) market, however, ethanol is sold between Rs 26 and Rs 27 per litre. The industry has further asked to remove the companies from the list of defaulters of the earlier contract.

Domestic oil companies have floated a tender to procure 100 million litres of ethanol for the 19-month period ending March 31, 2010, for which the price negotiation is in an advanced stage. According to an official of a major ethanol supplier, cost of production on Monday stands at Rs 30 per litre on Rs 5,000 per tonne of molasses, 4 per cent sales tax, steam cost, plant maintenance and labour cost.

Statistically, hardly four per cent of molasses is extracted from cane crushing. Each tonne of molasses produces between 250 and 260 litres of alcohol (rectified spirit or potable alcohol, industrial alcohol or ethanol). Depending on the demand of each product, the sugar mills divert molasses to the respective areas.

Looking at the oversupply of ethanol, the price rise may not be met as domestic oil companies are facing huge losses on the sudden spurt on crude oil prices from around $75-80 to $118 now, said an expert. But, some price-rise can not be ruled out, he added. Meanwhile, anticipating lower cane output this year, the prices of molasses, the raw material for ethanol production, have shot up to Rs 5,000 a tonne now from Rs 700-800 a tonne a year ago.

According to Deepak Desai, chief consultant of ethanolindia.net, a website tracking ethanol demand- supply and production-sale in the country, ethanol output is likely to decline by up to 10 per cent this year on about 8-10 per cent fall on cane output. The largest producer, Maharashtra, is set to lose 15-20 per cent of ethanol to up to 700 million litres of alcohol this season on an anticipated 30 per cent fall in cane output.Last year, Maharashtra exported about 300,000 tonnes of molasses.
 

SEEKING RELIEF
Alcohol production (in million tonnes)

Alcohol year

Molasses
production Alcohol
production Industrial uses Potable uses Other uses Surplus
availability 2001-028.771775.205398.00647.8059.90527.70 2002-039.231869.70550.50660.7061.00597.50 2003-049.731969.20578.00693.7070.00627.50 2004-0510.242074.50606.90728.3073.50665.80 2005-0610.792187.00619.00746.5077.20742.30 2006-0711.362300.40631.40765.2081.00882.80 2007-0811.682365.00950.00780.0085.00550.00

With this expected fall in cane output, the 10 per cent ethanol blending which the government is planning to make mandatory, is unlikely to be practical due to the lack of availability, said Desai. An official of the Maharashtra State Federation of Co-operative Sugar Factories, the representative of sugar co-operative mills in Maharashtra, said that ethanol output will proportionately decline this year in line with cane output.

Currently, rectified spirit, containing 95 per cent fuel oil and 5 per cent water, which if removed, pure ethanol is obtained, is quoted at Rs 28-30 per litre. Hence, sugar crushing mills may not find it feasible to supply ethanol at the current price of Rs 21.50 per litre. If ethanol price is not revised upwards, sugar mills may divert molasses to other areas including potable and industrial use of spirits, said an official in the office of Sugar Commissioner, Pune.

At an estimated 10 per cent recovery average, India is likely to crush about 220 million tonnes of cane this sugar year to produce 22 million tonnes of sugar and 228.8 million tonnes of molasses.