Sugarcane set to reclaim dominance as ethanol feedstock next year: Industry

Industry experts anticipate a shift back to sugarcane-based molasses as the primary feedstock for ethanol production next year, driven by expected surplus sugar supplies and calls to lift restrictions

After ceding space to grains, industry players believe that sugarcane-based molasses might regain its position as the pre-eminent feedstock in the ambitious ethanol blending program starting in the forthcoming ethanol supply year, which begins in November 2024 or come close to grains.

In the ongoing supply year (2023-24), which ends in October, maize and broken rice have replaced sugarcane-based molasses as a important feedstock for producing ethanol to keep the blending program running. Industry sources said till July 14 around 4.26 billion litres of ethanol have been supplied to the Oil Marketing Companies (OMCs) by distillaries of which sugarcane and maize has supplied almost an equal amount.

This is a remarkable performance from the grains side as till a few years back, their contribution to total annual ethanol supplies was less than even 30 per cent.

This shift occurred after the Centre imposed restrictions on the production of ethanol from B-heavy molasses and sugarcane juice. Additionally, maize-based ethanol prices were raised mid-way through 2023-24 to make it more remunerative for distilleries, which increased their share.

However, with sugar supplies expected to be in surplus in the 2024-25 marketing season starting in October, the sugar industry has been urging the government to lift the curbs on ethanol production from B-heavy molasses and sugarcane juice that were imposed in December 2023.

The Indian Sugar and Bio-Energy Manufacturers Association (ISMA) has already written a letter to the food secretary, requesting the lifting of these restrictions on ethanol production from B-heavy molasses and sugarcane juice.

In its letter, ISMA stated that the restrictions imposed by the orders in December 2023 have significantly impacted the sugar industry's financial stability.

The industry has incurred losses due to reduced production of syrup/B-heavy ethanol, as well as from interest, depreciation, and other fixed costs arising from the underutilisation or non-utilisation of assets and idle capacities.

As an industry body, ISMA regularly monitors sugar availability and crop conditions across the country.

According to its estimates, India will have an ample sugar balance of around 9.1 million tonnes at the end of this season, i.e., on September 30, 2024.

“This would result in a closing balance for 2023-24 of around 3.5 million tonnes of excess sugar over and above the normative stock of 5.5 million tonnes,” the letter said.

It added that given the good monsoon so far and predictions for a normal monsoon this year, the 2024-25 Sugar Season (SS) is expected to be moderate, indicating no shortage of supply for domestic consumption and the unhindered continuation of the Ethanol Blending Program (EBP).

“The industry has invested heavily in setting up large capacities to produce ethanol, aligning with the Government of India's long-term vision to achieve a 20 per cent blending rate by 2025-26. The government has supported these investments with encouraging policies and financial support in the form of interest subvention. To sustain these investments and maintain progress toward higher blending rates, we kindly request you to revoke the orders restricting the use of sugarcane juice and B-heavy molasses for ethanol production in the 2024-25 ESY,” the letter said.

The resumption of supplies will enable millers to plan their upcoming season with clarity, ISMA said.

“This would also help millers to undertake planning and preparation for ethanol production in 2024-25, including maintenance and planning, budgeting and costing, regulatory compliance, and supply chain coordination,” the letter said.

"Is it due to the stoppage of diversion over the past year that there has been an increase in maize and grains and a decrease in sugar production, owing to a shift in ethanol blending?" Deepak Ballani, Director General of ISMA, said.

He added that it is important to note that the current year has been unusual, so decisions cannot be based on it. Despite having the capacity for 8.5 billion litres, the sugar industry is only able to produce 55 per cent, according to a report from Niti Aayog.

"We need to address this by correcting the pricing. While the Fair and Remunerative Price (FRP) has been announced for 2024-25, the minimum sale price (MSP) also requires a price correction. We hope the government will take action in addressing these issues, especially regarding the pricing to support the sugarcane industry," Ballani told Business Standard.

However, despite a loss in ethanol supplies, rating agency ICRA expects a stable year for the sugar companies in FY25. A recent research note estimated that revenues of integrated sugar mills are expected to expand by 10 per cent in FY25, supported by an expected increase in sales volumes along with firm domestic sugar prices and higher distillery volumes after the operationalisation of new capacities.

The note further said that the operating profit margins of the sugar mills are also projected to remain comfortable in FY25, in line with FY24, due to firm sugar realisations and higher cane prices for the sugar season 2025.

Predominance of maize in ethanol production

In ESY 2023-24, which ends in October, grains has replaced sugarcane as the main raw material for ethanol production. Until a few months ago, almost 55 per cent of ethanol supplies came from grains. Grains-based ethanol is majorly produced from either maize of damaged broken rice.

The Central government’s support for maize to keep the blending program running, after supplies from B-heavy molasses and sugarcane juice were stopped, also contributed to this transition.

Ethanol produced from maize commanded a price of almost Rs 72 per litre in ESY 2023-24, while its nearest competitor from sugarcane was less than Rs 60 per litre.

However, some analysts believe that maize's dominance will be short-lived, and from ESY 2024-25, sugarcane-based molasses will regain its leading position in supplies.

Recently, Cooperative Minister Amit Shah also mentioned in a function that the country is on course to achieve a 20 per cent blending target of ethanol with petrol by 2025.

To achieve a 20 per cent blending target by 2025, India requires around 10.16 billion litres of ethanol, with a total requirement of 13.5 billion litres, including other uses.

For this, about 17 billion litres of ethanol-producing capacity needs to be in place by 2025, assuming the plant operates at 80 per cent efficiency.

The Government has estimated the demand for ethanol required for 20 per cent blending by 2025, considering the growth of petrol-based vehicles in the two-wheeler and passenger vehicle segments, and the projected sale of Motor Spirit (MS).

At present, India has an ethanol production capacity of around 15.03 billion litres, with sugarcane-based molasses accounting for almost 61 per cent of that capacity (this includes dual feed distallries) while the rest coming from grains.

Some industry players said a big problem in pushing grains for ethanol too much as an alternative to sugarcane is the varied nature of the demand for both maize and damaged broken rice. Maize and rice is used extensively by the poultry feed industry as raw material and too much demand on them from the ethanol industry will put these ancillary sectors in trouble. As is having now.