India's Ethanol Strategy Shift: Boost in C-Heavy Molasses Pricing

India's government has raised the ethanol price from C-Heavy Molasses (CHM), indicating a strategic realignment in the ethanol sector. This shift suggests a move towards CHM and grain-based ethanol production, posing challenges for facilities focused on B-Heavy Molasses (BHM) and Sugarcane Juice (SCJ) ethanol.

The Indian government announced a significant price increase for ethanol derived from C-Heavy Molasses (CHM), suggesting a strategic pivot within the country's ethanol sector, according to a report from Systematix Institutional Equities. The decision underscores an incentive shift towards CHM and grain-based ethanol, moving away from B-Heavy Molasses (BHM) and Sugarcane Juice (SCJ) as preferred feedstocks.

The union cabinet's decision has raised CHM-based ethanol prices by Rs1.69 per litre to Rs57.97 per litre. Meanwhile, prices for ethanol produced from BHM and SCJ remain unchanged at Rs60.73 and Rs65.60 per litre, respectively, marking the second year without price adjustments for these feedstocks. This price hike is expected to enhance profit margins for distilleries utilizing CHM, but firms reliant on BHM and SCJ will likely endure continued margin pressures due to stagnant pricing and last year's 3-5 per cent increase in sugarcane costs.

Market expectations for a Rs1.8-Rs2 per litre price increase across all ethanol types were unmet, as no adjustments were applied to grain-based ethanol rates. Recent expansions in distillery capacities for BHM and SCJ ethanol production face reduced operational viability due to the restructuring in pricing strategy.

A new government tender for 1.2 billion litres of ethanol, effective February 15 to July 31, 2025, specifies sourcing solely from CHM and grain-based processes. This strategy reveals a deliberate shift away from reliance on BHM and SCJ, a move likely influencing distilleries to prioritize production realignment.

With the improved margins in CHM and grain-based ethanol, distilleries are expected to pivot their production strategies. Concurrently, sugar mills could focus on maximizing sugar output due to its improved profitability, highlighted by a price increase to Rs39-39.5 per kg in January 2025 following sugar export enhancements.

(With inputs from agencies.)