‘Centre’s ethanol focus positive for sugar industry’

The Centre’s continued focus on ethanol is a positive for the sugar industry as exports are likely to reduce in SS21 (sugar season 2021), India Ratings and Research (Ind-ra) said in a report.

As per the report, record exports and a resilient domestic demand made sugar one of the few sectors to witness strong revenue growth in the Covid-19 affected in 1HFY21. “The growth was also supported by an increase in the distillery revenue. The aggregate revenue of major sector entities grew 30 per cent YOY in 1HFY21...,” the report said.

“However, the growth in the sugar segment is likely to witness a moderation in 3QFY21 with a significant reduction in exports due to the delay in announcement of export subsidy mid-december 2020. While the government has extended the period of subsidy by three months to December, most large mills had exhausted their quotas by 2QFY21.”

On December 16, the Cabinet Committee on Economic Affairs (CCEA) announced the long-awaited export subsidy for SS21, reducing the amount to Rs 5.8 per kg possibly due to the stretched government finances and an increase in international prices.

Besides, Ind-ra expects sugar exports to moderate from the SS20 historical high. “India exported 5.7 million tonnes (mnt) of sugar in SS20 and reports indicate an export of another 0.2-0.3mnt during October-december 2020, thus almost achieving the entire MAEQ target of 6mnt for the season.”

“The increase in exports is mainly attributable to the opening up of Indonesian market as the country extended its preferential lower import duty to Indian sugar amid a decline in sugar production in Thailand. Besides, imports to Iran increased to at least a 15-year high, with Iran and Indonesia together importing 1.7mnt of sugar in SS20.” However, it pointed out that while MAEQ has been kept unchanged at 6mnt for SS21, exports are likely to reduce to around 5mnt on account of lower subsidy which could impact the competitiveness if prices decline post the arrival of Brazilian sugar in April.

Furthermore, exports to Iran could reduce amid an increase in the country’s production and shortage of Indian rupee. Nevertheless, continued government focus via increase in ethanol prices is likely to not only improve distillery profits for the season but also spur capex in the segment.

In October 2020, the CCEA, had announced an increase in ethanol procurement prices for the ethanol supply season (Decembernovember) 2021. The prices have been increased by 4-7 per cent for various feedstocks of sugarcane-based ethanol, with the highest being Rs 3.6 per litre for ‘Bheavy molasses’ route.

In addition, the ratings agency expects the domestic oversupply to continue in SS21 due to high carryover stocks and an increase in production.