Sugar Prices to Surge Amid Declining Production and Ethanol Diversion

Chennai: Sugar prices are expected to rise this fiscal as the net production is estimated to decline.

Domestic sugar prices, which are currently in the range of Rs 38-39/kg, are expected to remain firm till the start of the next season, finds ICRA. This could be due to the decline in net production after diversion towards ethanol production.

ICRA projects the net sugar production in the crop year 2025 is set to decline to 30 million MT from 32 million MT in 2024 based on the expectation that higher diversion will be allowed towards ethanol production amid the high sugar stock level.

The diversion towards ethanol production has been steadily rising in the past decade. It stood at 1.53 per cent of the total production in 2014 and has gone up to 12.48 per cent in 2024.

“The ethanol blending trend has remained encouraging till Ethanol Supply Year (ESY) 2024, given the higher contribution from grain-based distilleries. For ESY2025, the extent of the increase in diversion towards ethanol production over and above the cap remains critical to meet the 20 per cent blending target set by the Government of India,” said Girishkumar Kadam, Senior Vice President & Group Head - Corporate Ratings, ICRA.

Even if the diversion towards ethanol is increased to 4 million MT in SY2025, the closing sugar stock level is likely to remain moderately high. Therefore, clarity on the policy for allowing diversion beyond the cap of 1.7 million MT and the exports remain the key monitorable for the sector.

Firm domestic sugar prices along with expected increase in sales volumes and higher distillery volumes after the operationalisation of new capacities are likely to expand the revenues of integrated sugar mills by 10 per cent in FY2025. Further, the operating profit margins of the sugar mills are projected to remain comfortable in FY2025.