Sugar industry economic impact

Sugar Stocks Surge Up to 12% as Government Allows Sugarcane Juice, Syrup for Ethanol Production

The Indian government’s decision to permit the use of sugarcane juice and sugar syrup for ethanol production in the 2024-25 Ethanol Supply Year (ESY) has led to a significant rally in sugar stocks, with some companies witnessing gains of up to 12%. This move reverses the previous year’s ban and is expected to boost ethanol production, contributing to the government’s broader ethanol blending targets.

Government Decision:

1. • Ethanol Production Approval: On August 30, 2024, the Indian government allowed sugar mills and distilleries to produce ethanol from sugarcane juice and sugar syrup for the 2024-25 ESY. This decision marks a reversal from December 2023, when the use of these raw materials for ethanol production was prohibited to ensure sufficient sugar availability for domestic consumption.
   • Production Oversight: The Food Ministry, along with the Petroleum and Natural Gas Ministry, will periodically review the diversion of sugar for ethanol production to ensure a balance between ethanol production and sugar availability for domestic consumption.

2. Impact on Sugar Stocks:

1. • Market Reaction: The government’s announcement led to a sharp increase in sugar stocks on August 30, with several companies experiencing significant gains during early trading hours. The surge in stock prices reflects investor optimism about the positive impact of the policy change on the profitability of sugar companies.
   • Top Gainers:
     • Dalmia Bharat Sugar: The company’s stock surged 11.98% to ₹495.05 per share on the National Stock Exchange (NSE).
     • Balrampur Chini Mills: The stock rose 6.75% to ₹617.85 per share in early trading.
     • Dhampur Sugar Mills: The company’s share price increased by 6.87% to ₹223.51.
     • Shree Renuka Sugars and Bajaj Hindustan: Both companies saw their shares rise by 8.39%, trading at ₹51.39 and ₹44.16 per share, respectively.
     • Sakthi Sugars: The stock climbed 7.05% to ₹41.13 per share.
     • Dwarikesh Sugar: The stock rose 5.75% to ₹77.82 per share.
     • Avadh Sugar & Energy: The company’s shares surged 6.59% to ₹753.45 apiece.
     • Praj Industries: As a key ethanol plant supplier, Praj Industries also benefited from the policy change, with its stock rising 6.72% to ₹777.9 per share on the NSE.

3. Ethanol Production Boost:

1. • Current Ethanol Blending: India has made significant progress in ethanol blending, achieving a blending rate of 13.3% by July of the current season, up from 12.6% in the previous season. This progress is part of the government’s broader goal to achieve 20% ethanol blending by 2025-26.
   • Production Capacity: India’s total ethanol production capacity currently stands at 1,589 crore litres. During the 2023-24 season, Oil Marketing Companies (OMCs) purchased 505 crore litres of ethanol for blending purposes.

4. Global and Domestic Significance:

1. • Global Standing: India is the world’s second-largest sugar-producing country after Brazil. The government’s focus on increasing ethanol production is part of a broader strategy to enhance energy security, reduce dependence on fossil fuels, and support the agricultural sector by providing an alternative market for sugarcane.
   • Strategic Implications: The decision to allow sugarcane juice and syrup for ethanol production is expected to positively impact the sugar industry by providing an additional revenue stream, reducing surplus sugar stocks, and stabilizing sugar prices.

Advantages of the Policy Change

• Increased Profitability: Sugar mills can now benefit from an additional revenue stream by producing ethanol from sugarcane juice and syrup, which is expected to enhance their profitability.
• Support for Ethanol Blending: The policy supports the government’s ambitious target of achieving 20% ethanol blending by 2025-26, contributing to energy security and reducing carbon emissions.
• Price Stabilization: The diversion of sugarcane juice and syrup for ethanol production can help reduce surplus sugar stocks, leading to more stable sugar prices in the domestic market.

Disadvantages of the Policy Change

• Potential Sugar Shortage: There is a risk that increased ethanol production could lead to a shortage of sugar for domestic consumption, which may drive up sugar prices.
• Operational Challenges: Sugar mills and distilleries may face operational challenges in scaling up ethanol production to meet the new policy’s potential.

Conclusion

The government’s decision to allow the use of sugarcane juice and syrup for ethanol production in the 2024-25 ESY has had an immediate positive impact on sugar stocks, with several companies seeing significant gains. This policy change is expected to boost ethanol production, support the government’s ethanol blending targets, and provide a much-needed revenue stream for sugar mills. However, careful monitoring will be required to balance ethanol production with domestic sugar availability.

FAQs

1. What triggered the rally in sugar stocks on August 30, 2024?

1. • The rally was triggered by the Indian government’s decision to allow sugarcane juice and sugar syrup for ethanol production in the 2024-25 ESY.

2. Which sugar company saw the highest surge in stock price?

1. • Dalmia Bharat Sugar saw the highest surge, with its stock price increasing by 11.98% to ₹495.05 per share.

3. Why did the government reverse the ban on using sugarcane juice for ethanol production?

1. • The government reversed the ban to boost ethanol production, support the ethanol blending program, and provide an alternative revenue stream for sugar mills.

4. What is India’s ethanol blending target?

1. • India aims to achieve a 20% ethanol blending target by 2025-26.

5. How will the government ensure there is enough sugar for domestic consumption?

1. • The Food Ministry and Petroleum and Natural Gas Ministry will periodically review the diversion of sugar for ethanol production to ensure year-round availability of sugar for domestic consumption.

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