Govt lifts curbs on ethanol production, but only a third comes from sugar

Sugar stocks climb on ethanol policy, but grain-derived ethanol dominates the market

Shares of sugar companies rallied following two major policy developments that boosted the outlook for ethanol demand in India. The Supreme Court dismissed a plea challenging the rollout of 20 percent ethanol-blended petrol (E20). Simultaneously, the government removed restrictions on ethanol production from sugarcane juice, syrup, and molasses for the 2025/26 fiscal year.

Despite the positive sentiment, analysts at JM Financial highlighted that sugar accounts for just ~38 percent or one-third of total ethanol supplied to oil marketing companies (OMCs) till July 2025 in Ethanol Supply Year 2025 (ESY25).

The remaining ~62 percent comes from grains such as rice and maize. With total ethanol supplied at 7.23 billion litres till July 2025, sugar contributed only 2.74 billion litres, implying a likely 3.7 billion litres for the full year if the proportion holds.

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This indicates that while sugar stocks may benefit from the ethanol push, grains continue to dominate the blending mix. The lower share of sugar-derived ethanol is largely attributed to the absence of ethanol price revisions over the past two years.

Meanwhile, the Fair and Remunerative Price (FRP) for sugar has increased, further squeezing margins for distilleries relying on sugarcane juice and B-heavy molasses.

The government’s recent policy allowing unrestricted production of ethanol from sugarcane juice, syrup, B-heavy, and C-heavy molasses for ESY26 is aimed at promoting ethanol blending. However, analysts cautioned that this move will only benefit sugar mills and distilleries if ethanol prices are revised to make sugar diversion economically attractive. In the current scenario, sugar mills remain cautious, given depressed margins from the juice and B-heavy routes, while the bulk of ethanol demand continues to be met by grains.

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