India sugar mills to double ethanol supply as output jumps

MUMBAI (Reuters) - Indian sugar mills are set to more than double the supply of ethanol to fuel retailers for blending with gasoline in 2017/18, expecting a sharp rise in the local output of the sweetener, an industry body said on Wednesday.

Ethanol manufactures and oil marketing companies finalised supply contracts for a record 1.4 billion litres for the current year, compared with 665 million litres a year ago, the Indian Sugar Mills Association (ISMA) said in a statement.

The government last month raised ethanol prices by 5 percent to 40.85 rupees ($0.6375) per litre before tax for the year that began Dec. 1.

India has been aiming to boost the use of ethanol, which is a cleaner fuel option compared to gasoline as far as carbon emissions go. The government has been targeting 10 percent ethanol blending in gasoline.

Oil companies, however, find it hard to locally procure the sugar byproduct at the government-fixed rates as state governments have imposed heavy taxes on ethanol, widely used in the liquor industry.

Sugar mills also prefer to sell ethanol to spirit distilleries, where they get a better price and quicker deals.

Unlike Brazil, where sugar firms produce ethanol directly from cane juice, Indian millers use molasses, a by-product of sugar-making, to produce the chemical.

India's ethanol production is set to rise in 2017/18 as sugar output is expected to go up nearly a quarter from a year ago, increasing supply of raw material for ethanol manufacturing, the ISMA said.

($1 = 64.0800 Indian rupees)

(Reporting by Rajendra Jadhav; Editing by Biju Dwarakanath)