New Delhi: India's goal of achieving 20% ethanol blending in petrol by Ethanol Supply Year (ESY) 2025, equivalent to around 990 crore litres annually, will necessitate increased utilisation of both grain and sugarcane feedstock to boost supply, according to a report by Credit Rating Information Services of India Limited (CRISIL) Ratings. This strategy will also help optimise sugar inventory, particularly given the high carry-over stock anticipated at the end of the current season due to government restrictions on ethanol production and exports.
The report indicates that annual ethanol production from grains is expected to rise significantly, reaching approximately 600 crore litres by the next season, up from an estimated 380 crore litres this season. The remaining requirement will need to be met by processing ethanol from sugarcane, which is feasible given the existing substantial capacity.
CRISIL Ratings analysed 17 integrated sugar mills, which account for about one-third of the sugar-based ethanol supply, to arrive at these conclusions. The report highlights that ethanol blending reduces India's dependence on crude oil imports, with the ethanol blending rate increasing by 200-300 basis points each season since ESY 2021.
While grain utilisation for ethanol production is not regulated, the government determines the quantity of sugarcane used based on its assessment of the sugar demand-supply balance for the upcoming year. Sugarcane production this year is expected to have been impacted by last year’s erratic rainfall, resulting in restricted ethanol production from sugarcane, estimated at around 250 crore litres (equivalent to 2.5 million tonnes of sugar) this season.
"Ethanol blending could still improve to 14% in ESY 2024, as extraction from grains has risen significantly due to a 40% capacity expansion, compensating for the reduced output from sugarcane. However, to reach the 20% blending target by ESY 2025, allocating sugarcane required to produce around 4 million tonnes of sugar for ethanol production, similar to the 2023 season, can be considered," said Poonam Upadhyay, Director at CRISIL Ratings.
In the upcoming 2025 season, gross sugar production is expected to be around 33.5 million tonnes, with consumption estimated at approximately 29.5 million tonnes. Additionally, sugar inventories are projected to be healthy by the end of this season. CRISIL suggests that allowing sugarcane equivalent to the production of 4 million tonnes of sugar for ethanol supply (390 crore litres) could be feasible, with the remaining supply sourced from the grain-based route.
"Higher sugarcane usage for ethanol production will also help optimise sugar inventory, which is estimated to rise to about four months of consumption (around 8 million tonnes) by the end of this season. Moreover, it could positively impact the cash flows of sugar mills, enabling them to pay cane dues to farmers on time," said Anil More, Associate Director at CRISIL Ratings.
Looking ahead, CRISIL noted that the policy on the quantum of sugarcane allowed next season, as well as the availability and prices of grain-based feedstock, will be key factors to monitor. /BI
