India considers curbing use of cane for ethanol to tame record-high sugar market

MUMBAI/NEW DELHI: India is considering restricting the amount of sugarcane used for ethanol in the season beginning October to boost sugar output and try to calm record prices, two government and two industry sources said.

Reduced rainfall in Maharashtra and Karnataka, India’s biggest sugarcane-producing states, has raised concerns about next year’s sugar output, the sources said, declining to be named because the deliberations are not public.

They said prioritising sugar supplies over ethanol could help India to avoid sugar imports by boosting domestic supplies as production falls and a decision on the issue could be made by the end of next month.

A government spokesperson did not immediately respond to Reuters’ request for comment.

Raw sugar sets four-month high on tightening supplies

Roughly 3 million metric tons of sugar at stake

Mills diverted about 3 million metric tons of sugar, or around 10% of total output, to ethanol production during the current year to the end of September.

Restricting that next season could add a similar volume to domestic sugar supplies, offsetting the expected drop in output due to weak rains in the biggest cane-growing states, the sources said.

Indian sugar prices have risen about 10% over the last month to a record high and are expected to remain high for at least the next three months as supplies tighten and demand from the Indian festival season, when people travel more, gathers pace, Reuters reported last week.

To keep its programme of blending 20% ethanol into petrol on track, the government would need to increase the use of corn and rice for ethanol production to offset the reduced amount from sugar cane. Corn and rice stocks are ample.

The sources with direct knowledge of the matter said mills would be asked to stop producing ethanol from sugarcane juice and B-heavy molasses, a byproduct with a relatively high sugar content.

Mills would instead be allowed to produce ethanol mainly from C-heavy molasses, a byproduct left after most of the sugar has been extracted, they said.

The ethanol allocation for the sugar industry for the marketing year beginning November is expected to be finalized before the season starts, after which state fuel retailers will float tenders for ethanol purchases, the sources said.

New Delhi has already banned sugar exports and last month imposed limits on the stocks that dealers can hold.

The new curbs under consideration are unlikely to significantly hurt the sugar industry because mills are expected to earn more from producing and selling sugar than from diverting sugarcane for ethanol, industry officials said.