Sugar stocks rose by up to 15 per cent on Thursday, after an increase in the base prices of ethanol was cleared by the Cabinet Committee on Economic Affairs (CCEA).

The share price of Riga Sugar jumped 14.7 per cent to close at Rs 12.16. Simbhaoli Sugars and Rajshree Sugar rose 12.8 per cent and 7.8 per cent, respectively, ending at Rs 15.96 and Rs 24.20. Balrampur Chini and Bajaj Hindusthan posted a 4.9 per cent and 4.5 per cent increase to Rs 61.55 and Rs 21.95, respectively. Shree Renuka Sugars jumped 4.1 per cent to Rs 17.55.

The government’s decision to raise base prices of ethanol by Rs 1.50-2 a litre will, say analysts, accelerate the petrol-ethanol blending programme. Which is seen as  a big help for sugar companies’ financial health.

“There were lots of uncertainties in ethanol prices. With the selling price known, sugar mills will be able to produce more ethanol and convert raw material for surplus sugar to produce ethanol. Through this, excess sugar inventory will come down, in addition to improved supply of ethanol,” said Narendra Murkumbi, managing director of Shree Renuka Sugars, one of India’s largest ethanol producers and suppliers.

Indian Sugar Mills Association (Isma) has estimated a total surplus of 7.5 million tonnes in the 2013-14 crushing season 2013-14 (October–September), of which 2.5 mt was categorised as exportable surplus.

Depending upon the distance of oil marketing companies’ (OMCs) retail depot from a sugar factory, the CCEA fixed the ethanol supply price at Rs 48.50 a litre for a depot between 0-100 kms, Rs 49 a litre for 101-200 km, Rs 49.50 a litre for 201-300 km and Rs 50 a litre for a depot over 300 km. This is Rs 1.50-2 a litre higher than the previously negotiated procurement price. It has been linked to the Centre’s recommended Fair & Remunerative Price for cane, though many states have set their own, higher, State Advised Price.
 

Abinash Verma, director-general of Isma, said: “The industry welcomes the decision of the government to bring transparency and simplify the procedures to finalise ethanol contracts and supplies thereof. Linking the ethanol price to the sugarcane price will directly benefit the farmers. The industry is required to pass on 70 per cent of the revenue from primary byproducts and, therefore, this move will also mean higher revenue to  farmers.”

The industry expects quicker finalisation of contracts because of the fixed pricing system and faster and smoother movement of ethanol within and across states, with OMCs entering into agreements with states to get annual excise permits for ethanol.

“Overall, this decision will mean a successful ethanol blending programme and a quicker movement to a higher blending percentage. Five per cent ethanol blending will save foreign exchange of $800 million, equivalent to Rs 5,000 crore,” said Verma.

According to an OMC official, India has achieved only 1.33 per cent of ethanol blending so far. A five per cent blending target requires 1,200 million litres of ethanol this year.