This if true, is a huge REVERSAL in Policy - and a blow to the Structural story of Ethanol - and GOIs avowed claims of moving progressively and speedily towards clean, green energy!!
@Mehnazfatima Please point to the source of the news (as far as I know this has NOT yet been published, but is based on leaks to media).
Assuming above is true, and gets published in the next couple of days, I had some observations/questions:
-
That such a step is being taken points to (a ground study having been completed) the fact that actual shortfall on the ground is indeed likely to be BIG - belying ISMA claims; and is probably under compulsion of election-year policy-making
-
Direct IMPACT of this on the Sugar MIlls (not being able to produce Ethanol thru B-Heavy and Juice routes) will be in higher Working Capital requirements (to the extent of non-diversion)
-
Sugar prices may fall by Rs 1 or 2 per kg in the short term, but very likely to reverse once MH and KA Mills production falls as expected
-
Since Sugar prices will still make for profitable operations, why won’t Sugar Mills stop making Ethanol for SS 23-24, continue to make Sugar in order to maximise profitability?
-
Besides Ethanol thru C-Molasses route (in the course of normal sugar production) should continue to be taken in by OMCs; in fact there is a case for C-Molasses Ethanol to be priced higher by Government now (to incentivise more sugar production and thus reduce the likely shortfall)
-
Meanwhile Grain based Ethanol production may be suggested/incentivised as the way forward (primarily through Maize route, as otherwise there is shortage)?
In balance, there shouldn’t be any/much impact in profitability figures for UP Sugar Mills (with better financial strength).
Rather it’s a case of sentiment turning worse (which is equally important for investment thesis) for the Sugar Sector (and actually for GOI avowed policies - that these can be reversed anytime by this government !!).