India May Cut Cane Ethanol Use as Sugar Prices Hit Record High

India is considering restricting the amount of sugarcane diverted toward ethanol production during the season beginning in October, as the government seeks to increase domestic sugar availability and contain record-high prices, according to several media reports.

The proposed measure comes amid growing concerns over sugarcane production in Maharashtra and Karnataka, India’s two largest sugarcane-producing states. Lower-than-normal rainfall in these regions has raised concerns about next season’s cane availability and sugar production. Sources familiar with the discussions said the government is evaluating whether prioritizing sugar production over ethanol could strengthen domestic supplies and reduce the risk of sugar imports. The sources spoke on condition of anonymity because the deliberations have not been made public.

Roughly 3 Million Metric Tons of Sugar at Stake

Indian sugar mills diverted approximately 3 million metric tons of sugar, equivalent to around 10% of total production, toward ethanol manufacturing during the current season ending in September.

According to media reports, restricting a similar volume of sugarcane-based ethanol production next season could potentially return nearly 3 million metric tons of sugar to the domestic market. The additional supply could partially offset an anticipated decline in sugar production caused by weaker rainfall in major cane-producing regions.

Indian sugar prices have increased by around 10% over the past month and reached record levels. Prices are expected to remain elevated for at least the next three months as domestic availability tightens and demand rises during the Indian festival season, when travel and consumption typically increase.

The government could make a decision on the proposed restrictions by the end of next month. India has already banned sugar exports and, last month, introduced limits on the quantity of sugar stocks that dealers can hold.

However, reducing sugarcane-based ethanol production could create challenges for India’s ethanol-blending program. To maintain its target of blending 20% ethanol into petrol, the government would need to increase ethanol production from alternative feedstocks such as corn and rice. Media reports indicate that supplies of both grains are currently adequate.

Under the proposed approach, sugar mills would primarily be encouraged to manufacture ethanol from C-heavy molasses, a byproduct generated after most of the sugar has been extracted.

The ethanol allocation for the sugar industry for the marketing year beginning in November is expected to be finalized before the new crushing season starts. State-owned fuel retailers would then conduct tenders to purchase ethanol.

Industry officials said the proposed restrictions are unlikely to materially damage sugar mills because higher sugar prices could provide better returns than diverting cane toward ethanol production.

Product and Chemical Commodity Price Impact

The move would likely support sugar prices in the near term by increasing domestic availability and reducing the possibility of supply shortages. However, reduced sugarcane allocation for ethanol could tighten feedstock availability for sugar-based ethanol, potentially supporting ethanol prices. Greater reliance on corn and rice for ethanol may strengthen demand and provide some price support for these commodities. For ChemAnalyst-tracked chemical commodities, higher ethanol prices could increase costs for downstream products and fuel-blending applications, although the effect would vary by market. Meanwhile, stronger use of C-heavy molasses could influence molasses and ethanol economics while limiting the broader impact on chemical feedstock prices.