Sugar Mills Shift Focus: Sweetener Over Ethanol for Profits

Indian sugar mills are strategically shifting their focus from ethanol production to sugar manufacturing, driven by a significant surge in sugar prices. Companies indicated in recent quarterly earnings calls that they anticipate government intervention to curb the diversion of B-heavy molasses for ethanol, a move that would allow them to maximize profits from higher sugar sales volumes and firming prices. This decision is largely influenced by current sugar prices hovering around INR 46 per kg (ex-mill), making sugar the most lucrative product derived from sugarcane.

Compounding the situation, deficient rainfall in crucial sugarcane-producing states like Maharashtra and Karnataka has impacted overall production. This, coupled with strong domestic demand, has led to tight sugar inventories, with wholesale rates around Rs45.2-45.25/kg as of August 17. Industry analysts suggest that restricting B-heavy molasses diversion will result in increased sugar production, offsetting potential drawbacks from distillery restrictions. Sugar mills may also consider early sowing to capitalize on the elevated sugar prices.

For the 2025-26 sugar year, India's sugarcane diversion for ethanol is estimated at 3 million tons, with a portion supporting the E20 blending program. However, management at companies like E.I.D.-Parry is also leaning towards maximizing sugar output. Due to local feedstock scarcity, some companies have resorted to importing feedstock, but plan a more measured approach going forward. Analysts predict that even if this leads to a future price correction, the overall outcome for sugar mills will remain positive due to the firmly established higher base price of sugar.