Ethanol blending to dip by 20% on restrictions in sugarcane juice use

New Delhi: The government's decision to restrict the use of sugarcane juice and sugar syrup for ethanol production is estimated to bring down the ethanol blending rate to less than 10 per cent in the current ethanol supply year (November 2023 to October 2024) against 12 per cent recorded in the previous year, rating agency CRISIL said on Monday.

In a letter issued to all sugar mills and distillers, the central government last week directed them “not to use sugarcane juice /sugar syrup” for ethanol production during the 2023-24 ethanol supply year.

The move is expected to result in 20 per cent year-on-year decline in ethanol production, CRISIL said in a note.

The government’s ambitious target of attaining 20 per cent ethanol-blended petrol by 2024-25 and 30 per cent by 2029-30 is likely to face setbacks due to this move.

The centre’s decision on restricting the use of sugarcane juice in ethanol blending came in view of the projected decline in sugar production and resulting volatility in price.

According to CRISIL, sugar output, which was expected to decline by 10-11 per cent in the current season, would contract at a slower pace of 3-4per cent due to the restrictions.

India experienced scanty rainfall in key sugarcane-producing states such as Maharashtra and Karnataka that received 3 per cent and 18 per cent lower rainfall on-year. Insufficient water availability led to lower yields.

Sugarcane production is expected to decline by 9 per cent in 2023-24 (October 2023 to September 2024) period year-on-year due to scanty rainfall in key sugarcane-producing states Maharashtra and Karnataka. In Karnataka rainfall was 18 per cent lower while in Maharashtra it was 3 per cent less when compared with the last season.

Given sugarcane is a key raw material for production of both sugar and ethanol, dwindling supply is compelling producers to choose between the two. Against the backdrop of price volatility in staples like rice, wheat, onion, tomato, and the upcoming national elections, the government has taken measures to control domestic sugar prices, CRISIL noted in its report.

While the government has banned production of ethanol directly from sugarcane juice, ethanol production from B heavy molasses and C heavy molasses is still permitted. Of the total ethanol produced in the country, ethanol from cane juice accounted for 25-30 per cent while that from B heavy molasses accounted for over about 60-65 per cent. Ethanol from C heavy molasses and grains accounted for the rest in the last ethanol supply year.