Could This Ethanol Price Hike Send Sugar Stocks Soaring?

Sugar stocks experienced a surge of up to 5% after reports emerged that the government is contemplating a proposal to raise ethanol prices for the 2024-25 season. This initiative also includes promoting the diversification of feedstocks to achieve the 20% ethanol blending target by 2025-26.

A committee chaired by a joint secretary from the petroleum ministry has already reviewed this proposal. According to sources cited by PTI, the planned ethanol price adjustment will correspond with the fair and remunerative price of sugarcane.

The potential price revision is being prioritized to encourage production and meet the blending goals. This follows a statement from Cooperation Minister Amit Shah last week, who emphasized a comprehensive approach to biofuel production and confirmed that India is on track to meet its 20% ethanol blending target by 2025-26, ahead of the original 2030 deadline.

Ethanol prices have remained stable since the 2022-23 season (November-October). Currently, the price for ethanol derived from sugarcane juice is set at ₹65.61 per litre, while ethanol produced from B-Heavy and C-Heavy molasses is priced at ₹60.73 and ₹56.28 per litre, respectively. The sugar industry has been advocating for a hike in ethanol prices for some time.

The expected price increase is likely to enhance the profitability of sugar companies, as higher ethanol prices could lead to greater revenues from ethanol, a key byproduct of sugar manufacturing. Investors responded positively to this news, resulting in a rise in the stock prices of major sugar producers.

Following the media reports, shares of companies such as Bajaj Hindustan Sugar, Balrampur Chini Mills, Dalmia Bharat, Awadh Sugar, Mawana Sugars, Shree Renuka Sugar, Triveni Engineering, and Dhampur Sugar saw gains of up to 6%.

In particular, Balrampur Chini Mills also benefited from its Q1 results, which showed improvements in volumes and realisations within the sugar segment, supporting its overall performance. With sufficient sugar stocks in India, analysts anticipate the continuation of the ethanol-blending program, similar to what was observed in Sugar Season (SS) 23.

As of 09:59 AM IST on Wednesday, sugar stocks were mostly trading lower.

Among the few gainers, Balrampur Chini Mills share price rose by 1.33% and KM Sugar Mills share price saw a slight increase of 0.40%.

On the other hand, several stocks experienced declines. Simbhaoli Sugars Ltd. dropped by 5.03%, followed by Rajshree Sugars & Chemicals Ltd. down 2.78%, and Mawana Sugars Ltd. with a 2.50% decrease. Other notable losers included Kothari Sugars & Chemicals Ltd. (down 2.24%), Avadh Sugar & Energy Ltd. (down 2.12%), Magadh Sugar & Energy Ltd. (down 2.00%), Ponni Sugars (Erode) Ltd. (down 1.94%), Shree Renuka Sugars Ltd. (down 1.84%), Rana Sugars Ltd. (down 1.75%), and Vishwaraj Sugar Industries Ltd. (down 1.49%).