Double whammy for India's sugar mills

Oil marketing companies (OMCs) are set to prioritise co-operative sugar mills for ethanol purchases, marking a shift from earlier practices favouring mills with long-term agreements, sources told CNBC Awaaz.

The ethanol price hike is likely to be limited to ₹1–1.5 per litre, less than the ₹2–2.5 per litre demanded by sugar mills. Stricter tender conditions and a lower-than-expected price hike may prove to be a double whammy for sugar mills.

Also read: India considers raising domestic prices for sugar and ethanol

Shares of sugar companies fell sharply on Wednesday, with DCM Shriram Industries sliding nearly 4%, Dalmia Bharat Sugar and Dhampur Sugar down over 3%, and others like Vishwaraj Sugar and Balrampur Chini Mills declining by 2–3%.

Earlier in September, Food Minister Pralhad Joshi announced plans to increase domestic prices for sugar and ethanol. The move is aimed at accelerating the ethanol blending programme, which targets 20% blending with petrol by 2025-26.

Ethanol prices have been unchanged since the 2022-23 cycle that begins November and ends in October every year. Currently, ethanol made from cane juice is priced at ₹65.61 per litre, while ethanol from B-heavy and C-heavy molasses is priced at ₹60.73 and ₹56.28 per litre, respectively.

Also read: ISMA warns of sugar industry crisis if ethanol prices remain unchanged

The Indian Sugar Mills Association (ISMA), in a conversation with CNBC TV18, had earlier warned of a looming crisis in the sugar sector, cautioning that many mills could face significant challenges if ethanol prices are not revised soon.

Ethanol production has emerged as a critical revenue stream for sugar mills, enabling them to diversify their income sources. It offers financial stability during periods of fluctuating sugar prices, ensuring consistent revenue despite market uncertainties.