Sugar Stocks Plunge as Government Halts Ethanol Supplies for 2026-27
Major sugar companies experience significant losses following government restrictions on sugar-based ethanol production.
Bajaj Hindusthan Sugar shares fell 5.22% amid government restrictions.
Ethanol procurement tender excludes sugar-based feedstocks, shifting focus to grain.
Concerns over domestic sugar supply and production pressures affect market dynamics.
On Monday, sugar stocks faced a sharp decline, with major players like Bajaj Hindusthan Sugar witnessing a drop of 5.22%, bringing its share price down to Rs 20.16 on the Bombay Stock Exchange. Other companies also reported significant losses, including Dwarikesh Sugar Industries, which fell 4.45% to Rs 44.28, and Shree Renuka Sugars, down 4.43% to Rs 21.16. The downturn coincided with the broader market's sluggish start, as the BSE Sensex decreased by 307.63 points, or 0.41%, to 74,421.64.
The decline in sugar stocks is primarily attributed to the government's recent decision to halt sugar-based ethanol supplies for the 2026-27 supply year. This directive, communicated through a tender issued by Bharat Petroleum Corporation Ltd, mandates that oil marketing companies reduce sugar diversion for ethanol production to zero. The tender explicitly excludes offers for ethanol derived from sugarcane juice, sugar syrup, and B-heavy molasses, significantly impacting sugar mills that rely on these sources for higher profit margins.
In the tender, the government seeks bids for approximately 11 billion liters of ethanol, intended to fulfill the requirement of blending 20% ethanol with petrol under the national program. The exclusion of sugar-based feedstocks shifts the focus to grain-based ethanol, allowing producers to use maize, broken rice, and C-heavy molasses. However, the procurement price for maize-based ethanol has been reduced, which may affect the returns for producers.
This decision comes amid rising concerns regarding domestic sugar availability, exacerbated by poor rainfall in key sugar-producing states like Maharashtra and Karnataka. The government's move aims to balance the need for adequate sugar supplies while managing domestic prices, as the country continues to push for increased ethanol blending to reduce reliance on imported crude oil.
Looking ahead, the exclusion of sugar-based ethanol will require distilleries to adapt to new feedstock options and navigate the challenges posed by fluctuating grain availability and procurement prices. The success of the petrol-blending program will depend on how effectively these adjustments can be made in response to the evolving market landscape.
