The domestic alcohol-based chemical producers like Jubilant Organosys and India Glycols have largely stopped sourcing alcohol from the Indian sugar companies and have shifted to cheaper imports from Brazil. While all this is not so good news for the sugar industry, it is a positive one for the liquor industry since this implies virtually no price competition even in a year of shortage.
“The landed cost of imported alcohol even at a 7.5 per cent import duty and a weakening rupee is cheaper by Rs 4-5 a litre compared to the domestic alcohol. Moreover, domestic output is down nearly 30 per cent in line with the dip in sugarcane production,” said an industry official.
In the current year, sugar mills, particularly in Uttar Pradesh (UP), have recorded the shortest crushing period in a decade and most were forced to operate at 40-50 per cent capacity. This has impacted the production of molasses, the raw material for alcohol.
Alcohol is used for production of various chemicals like acetic acid, acetic anhydride, ethyl acetate, acetone, MEG, etc. These alcohol-based chemicals provide feedstock for a variety of industries such as synthetic fibres, pesticides, pharmaceuticals, paints, dye stuffs, adhesives, etc.,
Annual alcohol demand from chemical industries is estimated at 1,000 million litres. However, this demand is on a gradual decline since consumption demand from sectors like textile and synthetic paint industry has dipped. The lower demand from chemical industry will extinguish the potential demand-supply mismatch and keep prices stable. The liquor industry, another major consumer of molasses, will be the main beneficiary.
“We have to compete with global players who manufacture the same chemicals through the crude oil route and are able to sell cheaper since crude oil prices have crashed,” the official added.
“Demand from chemical sector is down by 70 per cent in UP. While there is no impact today since molasses output is lower, next year could be a difficult situation,” said C B Patodia, advisor, Birla Group of Sugar Companies and president of the UP Sugar Mills Association.
“Domestic availability is limited this year. On top of that, sugar mills, with storage capacity prefer to store molasses since they expect prices to firm up,” said Anand Singhal, chief financial officer, India Glycols, a leading chemical producer.
