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Governments decision of Wednesday to raise prices of ethanol produced from only C-Heavy Molasses (CHM) suggests a potential reshaping of India's ethanol industry says a report by Systematix Institutional Equities.
The report says a shift in government incentives towards CHM and grain-based ethanol while reducing reliance on BHM and SCJ as feed stocks indicates government preference towards CHM based ethanol. On Wednesday the union cabinet has raised the price of C-Heavy Molasses (CHM) based ethanol by Rs1.69 per litre to Rs57.97 per litre, while keeping the prices of B-Heavy Molasses (BHM) and Sugarcane Juice (SCJ) based ethanol unchanged at Rs60.73 per litre and Rs65.60 per litre, respectively, for the second consecutive year. The increase in CHM-based ethanol prices is expected to improve margins for distilleries using CHM as feedstock. However, companies relying on BHM and SCJ for ethanol production will likely continue to face margin pressure since their prices remain unchanged despite the government raising sugarcane prices by 3-5 per cent last year. The market had anticipated a price hike of C-Heavy Molasses (CHM) based ethanol by Rs1.8-Rs2 per litre for all ethanol feed stocks, but no such announcement has been made, including for the grain-based ethanol. Several companies have expanded their distillery capacity over the past few years, primarily for BHM and SCJ-based ethanol, and these new facilities now face the risk of operating at lower utilization levels. The government has issued a new ethanol procurement tender of 1.2 billion litres for supply between February 15 and July 31, 2025. Notably, the tender is limited to ethanol produced using CHM and grain-based feed stocks, signalling a clear preference away from BHM and SCJ. With better margins in CHM and grain-based ethanol, distilleries may gradually shift production away from BHM and SCJ-based ethanol. Sugar mills are likely to maximize sugar production as the profitability of sugar sales has improved. Sugar prices, which were Rs37-38 per kg until December 2024, have increased by Rs1.5-2 per kg in January 2025 to Rs39-39.5 per kg following the announcement of 1 million tonnes of sugar exports. This price rise could significantly boost profitability in the sugar segment, prompting mills to prioritize sugar production over ethanol derived from BHM and SCJ. (ANI)
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