 "Sugar mills cut asking price for ethanol for OMCs")
Sugar mills have cut down their demand for ethanol price from oil marketing companies (OMCs) by 10-15 per cent, owing to viability issue on steep fall in crude oil prices.
Against ex-depot price demand of Rs 50 a litre earlier, sugar mills are currently negotiating with OMCs for Rs 44-46 a litre depending on supply destination. The price offer stands at Rs 4-6 a litre higher than what OMCs paid last year — Rs 38-42 a litre.
If agreed, higher realisation would help turn around sugar mills’ ailing financial health, albeit marginally.
“Negotiations are currently on. But we are certainly looking at higher than what we were paid for the last tender,” said V N Raina, director-general of All India Distillers’ Association.
Meanwhile, crude oil prices have fallen to nearly 20 per cent from the recent peak of $115 a barrel on June 19 to trade at $92.6 a barrel currently on New York Mercantile Exchange (Nymex). Responding to the fall, OMCs have also cut petrol prices by five per cent to sell at Rs 76.14 a litre in Mumbai, compared to Rs 80.16 a litre on June 25.
Interestingly, sugar mills have understood the viability for OMCs. At Rs 50 a litre for ethanol, the demand was neither ethical nor viable for OMCs. Therefore, sugar mills had to cut their demand, an analyst said.
Sugar mills are now convinced that OMCs would have to procure ethanol from them as the recent amendment in the fuel policy restricts import of the green fuel directly or indirectly. Interestingly, sugar mills had quoted a minimum Rs 80 a litre to supply imported ethanol last year.
On behalf of OMCs, Hindustan Petroleum Corporation Ltd (HPCL) recently floated a tender to procure 1,580 million litres of ethanol during the cane crushing season, which would begin in the next few weeks. According to sources, large sugar mills in Uttar Pradesh participated in the tender without committing any quantity in the application form. This is because diversion of sucrose (cane juice) or raw molasses either for potable alcohol or exports. Large mills in Uttar Pradesh have threatened not to commence crushing this season. Although crushing might start late this year with the possibility of a fall in production.
India exported 480,000 tonnes of molasses (sufficient to produce 130 million litres of ethanol) last year to fetch higher realisation. Sugar mills are playing safe this year to keep all options open. To meet the five per cent mandatory blending target, OMCs require 1,550 million litres of ethanol a year.
With sugar output estimated at 25 million tonnes this year, alcohol (a by-product of sugar and pre-form of ethanol) production can be achieved at 2,500 million litres. Of which, potable alcohol sector takes away 1,000 million litres and chemical industry consumes 700 million litres. Depending on slight variations, sugar mills might be able to supply only 800 million litres annually.
Understanding the pulse, therefore, Petroleum Minister Dharmendra Pradhan said in the Lok Sabha on July 7 that OMCs could achieve only 1.37 per cent blending of ethanol with petrol against the target of five per cent. The minister added that OMCs had taken cognizance of the hurdles in achieving the five per cent target.
According to Deepak Desai, an industry consultant heading ethanolindia.net, higher ethanol price could have stopped shipment of molasses from India last year.
OMCs are facing intense competition for procuring ethanol from alcohol manufacturers, which can pay any price for producing rum and whisky. The cost of raw material works out to just 10-15 per cent of alcohol price. Hence, alcohol manufacturers can afford to pay any price to ensure supply from sugar mills. If OMCs will have to achieve higher ethanol procurement, then they will have to raise price comparable to alcohol manufacturers, if not competitive.
“Looking at all permutations and combinations, it looks like India will not be able to achieve the five per cent blending target even this year, even after three successive seasons from the notification, said Raina.
To get rid of 1.6 million tonnes of surplus sugar, Indian Sugar Mills Association seeks direct manufacturing of ethanol from cane juice.
Against ex-depot price demand of Rs 50 a litre earlier, sugar mills are currently negotiating with OMCs for Rs 44-46 a litre depending on supply destination. The price offer stands at Rs 4-6 a litre higher than what OMCs paid last year — Rs 38-42 a litre.
If agreed, higher realisation would help turn around sugar mills’ ailing financial health, albeit marginally.
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“Negotiations are currently on. But we are certainly looking at higher than what we were paid for the last tender,” said V N Raina, director-general of All India Distillers’ Association.
Meanwhile, crude oil prices have fallen to nearly 20 per cent from the recent peak of $115 a barrel on June 19 to trade at $92.6 a barrel currently on New York Mercantile Exchange (Nymex). Responding to the fall, OMCs have also cut petrol prices by five per cent to sell at Rs 76.14 a litre in Mumbai, compared to Rs 80.16 a litre on June 25.
Interestingly, sugar mills have understood the viability for OMCs. At Rs 50 a litre for ethanol, the demand was neither ethical nor viable for OMCs. Therefore, sugar mills had to cut their demand, an analyst said.
Sugar mills are now convinced that OMCs would have to procure ethanol from them as the recent amendment in the fuel policy restricts import of the green fuel directly or indirectly. Interestingly, sugar mills had quoted a minimum Rs 80 a litre to supply imported ethanol last year.
On behalf of OMCs, Hindustan Petroleum Corporation Ltd (HPCL) recently floated a tender to procure 1,580 million litres of ethanol during the cane crushing season, which would begin in the next few weeks. According to sources, large sugar mills in Uttar Pradesh participated in the tender without committing any quantity in the application form. This is because diversion of sucrose (cane juice) or raw molasses either for potable alcohol or exports. Large mills in Uttar Pradesh have threatened not to commence crushing this season. Although crushing might start late this year with the possibility of a fall in production.
India exported 480,000 tonnes of molasses (sufficient to produce 130 million litres of ethanol) last year to fetch higher realisation. Sugar mills are playing safe this year to keep all options open. To meet the five per cent mandatory blending target, OMCs require 1,550 million litres of ethanol a year.
With sugar output estimated at 25 million tonnes this year, alcohol (a by-product of sugar and pre-form of ethanol) production can be achieved at 2,500 million litres. Of which, potable alcohol sector takes away 1,000 million litres and chemical industry consumes 700 million litres. Depending on slight variations, sugar mills might be able to supply only 800 million litres annually.
Understanding the pulse, therefore, Petroleum Minister Dharmendra Pradhan said in the Lok Sabha on July 7 that OMCs could achieve only 1.37 per cent blending of ethanol with petrol against the target of five per cent. The minister added that OMCs had taken cognizance of the hurdles in achieving the five per cent target.
According to Deepak Desai, an industry consultant heading ethanolindia.net, higher ethanol price could have stopped shipment of molasses from India last year.
OMCs are facing intense competition for procuring ethanol from alcohol manufacturers, which can pay any price for producing rum and whisky. The cost of raw material works out to just 10-15 per cent of alcohol price. Hence, alcohol manufacturers can afford to pay any price to ensure supply from sugar mills. If OMCs will have to achieve higher ethanol procurement, then they will have to raise price comparable to alcohol manufacturers, if not competitive.
“Looking at all permutations and combinations, it looks like India will not be able to achieve the five per cent blending target even this year, even after three successive seasons from the notification, said Raina.
To get rid of 1.6 million tonnes of surplus sugar, Indian Sugar Mills Association seeks direct manufacturing of ethanol from cane juice.