Sugar stocks get sweeter, surge up to 8% as India reverses ban on sugarcane juice to make ethanol

Sugar stocks surged up to 8 percent in early trade on December 18 since the food ministry has issued a fresh order reversing the ban on the use of sugarcane juice for making ethanol.

The ministry has also allowed the juice as well as B-heavy molasses to produce the green fuel in the 2023–24 supply year.

As of 9.17, Balrampur Chini Mills and Shree Renuka Sugars gained around 7.5 percent, while Dalmia Bharat Sugar was higher by 6.5 percent. Triveni Engineering and E I D-Parry (India) rose around 5 percent each.

Earlier, on December 5, in a directive issued to all sugar mills and distilleries, the ministry had said that the oil marketing companies (OMCs) will issue a revised allocation of sugarcane juice and B-heavy molasses-based ethanol for the 2023–24 supply year to each distillery.

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Since December 6 to the close on December 16, shares of Balrampur Chini Mills have tanked 17.5 percent, the Dalmia Bharat Sugar stock has lost 11.13 percent, Shree Renuka Sugars 7.6 percent and Triveni Engineering has given up 12.2 percent.

The government move to curb ethanol production using sugarcane has come after erratic monsoon in India harmed sugarcane crops, prompting the world's second biggest sugar producer to extend export restrictions beyond October 31.

The Indian Sugar Mills Association (ISMA), a trade body of sugar producers, last month said the country's sugar production may fall 8 percent to 33.7 million tonnes (without considering diversion towards ethanol) in the 2023-24 marketing year, which started on October 1 as lower rainfall in key producing states could dent yields.

Also read | These ethanol-oriented sugar stocks are under pressure after govt curbs

"The diversion into ethanol has been quite meaningful over the past quarters and margin accretive for sugar companies. The government's ethanol clampdown may increase sugar production solely but the core output has not been as lucrative as ethanol diversion. Most of the consistent run-up seen across sugar stocks was on the back of the money made through ethanol diversification," said Nirav Karkera, head of research, Fisdom.

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