Sugar stocks get sweeter as India reverses ban ethanol made out of sugarcane juice

Sugar stocks rose over 10% on Monday (December 18) following the Ministry of Food's decision to reverse the ban on using sugarcane juice to make ethanol.

Key players like Balrampur Chini Mills and Shree Renuka Sugars surged around 7.5%, while Dalmia Bharat Sugar saw a rise of 6.5%.

Earlier, the government had set a cap at 1.2 million tonnes for the amount of sugarcane that could be diverted for ethanol production. Now, that limit has been raised to 1.7 million tonnes. This limit will be reviewed every month.

Vivek Saraogi, the Managing Director of Balrampur Chini Mills, told CNBC-TV18 that the move to revoke the ban will give the companies more flexibility in building the inventory for the coming year.

The decision to set a limit on the use of cane juice for ethanol production was aimed at increasing supply of sugar as it is used in food, at a time when high retail inflation has been squeezing household budgets.

Ethanol produced from sugarcane is mixed with fuel used in automobiles, for relatively cleaner emissions.

Fuel retailers Indian Oil Corporation, Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) had floated a tender of 8.25 billion litres of ethanol in the current season that started on November 1.

About a quarter of that would have come from cane juice.

While typically ethanol provides better profit margin, the earlier ban would have hurt the sugar mills. However, according to some estimates, the recent run up in sugar prices had softened the blow for the sugar mills.

The government's goal is to ensure more output and a build up of inventory to check retail prices of sugar. Balrampur Chini's Saraogi estimates that the govenrment could add up to 2 million tonnes of sugar to its inventory of 5.7 million tonnes at the end of the last procurement season.