Mumbai: Indian sugar stocks fell in early trading on October 19 after the government directed oil marketing companies to reduce sugar diversion for ethanol production to zero for the 2026-27 supply year, raising concerns over profit margins and returns on investment.
The latest ethanol tender excludes supplies produced from sugarcane juice, sugar syrup and B-heavy molasses, a sugar-rich by-product of sugarcane crushing. The decision restricts the ability of sugar companies to redirect these raw materials between sugar production and ethanol manufacturing in response to changing market conditions.
The policy change could weaken profit margins for sugar producers and reduce returns on investments made to expand ethanol production capacity. Companies may have less flexibility to adjust production according to market prices and demand for sugar and ethanol.
The government’s move aims to increase domestic sugar availability and ease prices that have reached record highs in India, the world’s largest sugar consumer. The decision comes as higher sugar prices raise concerns about pressure on food costs during the festive season.
Image Via: Deepak Sharma@Pexels | Cropped by BH
Sugar prices have risen by more than 10 percent as festive demand. The increase has heightened concerns over near-term food inflation before the start of the main sugarcane crushing season.
The government’s decision places greater emphasis on domestic sugar supplies by restricting the use of sugarcane-based raw materials for ethanol production under the latest tender. The change could affect how companies manage their sugar and ethanol operations during the 2026-27 supply year.
For investors, the restrictions raise questions about the profitability of sugar companies and the returns expected from ethanol-capacity investments. The fall in sugar stocks during early trading reflected market concerns following the government’s decision.
The policy is intended to improve sugar availability in the domestic market and help ease price pressures. Its effect on company margins and sugar prices will depend on how producers adjust to the restrictions and how supplies develop ahead of the main crushing season.
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