India's struggling sugar mills seek solace in ethanol

Reuters

* Govt wants oil companies to achieve 5 pct blending ofethanol in gasoline

* Hopes to reduce record current account deficit by cuttingcrude imports

* Demand for ethanol will give sugar mills a shot in the arm

* Oil firms float tender for 1.33 bln litres of ethanol

* With Brazil as inspiration, ethanol blending could keepgrowing

By Rajendra Jadhav

MUMBAI, Oct 15 (Reuters) - Struggling sugar mills in Indiaare seeking solace in producing ethanol from crushing sugarcane,as the government ramps up pressure on oil retailers to cutfossil fuel imports by blending gasoline with the biofuel.

New Delhi, scrambling for ways to cut nearly $20 billion offits oil costs as it battles a record current account deficit,could save around $1 billion on annual imports of crude as itpushes oil firms to hit a goal of 5 percent blending of ethanolin gasoline.

Reaching that blending target in 2013/14 for the first timesince its introduction over six years ago would lift earnings atindebted mills in the world's No.2 sugar producer and help curba notorious cycle of glut and deficit in Indian sugarcaneplanting.

With Indian mills making ethanol from molasses, a byproductof sugar production, the fading of that cycle would also ensuremore consistent output of the sweetener. That would providegreater stability to global sugar prices with India lessprone to swinging between net exports and imports of sugar.

"Since oil companies have floated tenders ahead of thesugarcane crushing season and there are no tussles over ethanolpricing, 5 percent blending can be done this year," said SanjayManyal, an analyst at Mumbai-based brokerage ICICI Direct.

Disagreements between mills and oil companies over pricingstymied progress after India launched its ambitious ethanolblending programme in 2006, trying to emulate the success ofBrazil's booming biofuel industry.

But state-run oil firms such as Indian Oil Corp Ltd, Hindustan Petroleum Corp and BharatPetroleum Corp have been far more amenable to mills'demands on pricing since the rupee plumbed record lows inAugust, driving up their crude oil import costs. These firmsimport crude to produce refined products like diesel andgasoline, which they sell through their fuel pumps.

"Oil companies won't find any problem in paying higherprices for ethanol (than last year) as they are buying importedcrude oil at much higher prices due to the weak rupee," saidDeepak Desai, chief consultant at Ethanol India, a privatecompany that helps set up ethanol production units.

Mills were supplying ethanol at around 38 rupees per litrein the latest tender, with imported gasoline costing 46 rupeesper litre.

The matter has taken on greater urgency since Oil MinisterVeerappa Moily told Prime Minister Manmohan Singh in August that5 percent blending could be achieved in 2013/14, helpingpreserve the country's precious foreign exchange. India's crudeimport bill was $144 billion last fiscal year - the largest partof its overall import costs.

SLOW AS MOLASSES?

The new crushing season, expected to start in November,could lead to record ethanol output if oil companies finalisetenders for 1.33 billion litres of supply from December 2013 toNovember 2014. That would dwarf the 80 million litres theybought in the 2012/13 sugar year that ended on Sept. 30.

But some millers cautioned that oil marketing companies weredragging their feet in finalising tenders, although oil firmssaid deals would likely be sealed soon.

"We also want to achieve 5 percent blending as early aspossible. We will try to award tenders by the end of thismonth," said an official with a state-run oil retailing company,who declined to be named as he was not authorised to speak withmedia.

That is good news for mills that have been struggling withlow sugar prices due to a surplus in production of the sweetenerfor the fourth straight year.

Indian sugar output usually plunges after a few years ofsurplus as the glut in supplies drags on prices and mills'ability to pay cane farmers. That prompts farmers to switch toother crops such as wheat, leading to a cane shortage that liftssugar prices and attracts more farmers in subsequent years.

A successful ethanol blending programme would weaken thatcycle by providing more consistent demand for cane, said AshokJain, president of the Bombay Sugar Merchants Association.

"Ethanol is more reliable source of income than sugar," hesaid.

And market participants reckon that ethanol blending inIndia has room to grow beyond 5 percent, citing compulsoryblending in Brazil which stands at 25 percent. Although raisingblending above 10 percent is unlikely in the short-term as itwould require modifications to automobile motors, while anystrengthening in the rupee could also make blending lessappealing as crude imports would become cheaper again.

"If 5 percent blending becomes successful, there is scope toincrease it to 10 percent without any change in car engines,"said ICICI Direct's Manyal, who has been tracking sugarcompanies for seven years.

(Editing by Joseph Radford)

Rates

View Comments (0)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • Enjoy this refreshing Triple Play offer!

    Get FIOS TV Mundo starting at $79.99/mo. w/ no annual contract + 2-yr. price guarantee. Or sign for 2 yrs. & get a $300 prepaid Visa. Click here.

    AdChoicesVerizon FiOS ®Sponsored
  • Tycoon's arrest sends shock wave through Russia

    Tycoon's arrest sends shock wave through Russia MOSCOW (AP) — The arrest of a Russian telecoms and oil tycoon has sent shock waves through the country's business community, with some fearing a return to the dark days of a decade ago, when the Kremlin asserted its power by imprisoning the country's…

    Associated Press
  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • Costco Stores in Canada to Stop Taking American Express

    “The credit card relationship between American Express and Costco Wholesale Canada will not be renewed when it expires” on Dec. 31, the company said today in an e-mail to Canadian customers. The message was attributed to Lorelle Gilpin, vice president of marketing and membership for Costco…

    Bloomberg
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • As Fed takes baby steps, Cramer's trick for profit

    In turn, Cramer says making money in the market, involves looking at the environment through the lens of the Fed. "The trick is to remember that they speak for the common person," Cramer said. "The Fed wants the common person to make money." With that backdrop always in mind, Cramer says it becomes…

    CNBC
  • Accomplish your career goals

    At Capella University, you can learn the skills you need to succeed. Why wait another day? Get started today.

    AdChoicesCapella UniversitySponsored
  • CNBC Anchor Calls Out Fed-Hater Bill Fleckenstein In Startling Shouting Match

    CNBC Bill Fleckenstein of Fleckenstein Capital appeared on CNBC's Futures Now program on Tuesday. Futures Now host Jackie DeAngelis came out swinging, asking Fleckenstein right at the top if he was willing to admit that he had misunderstood monetary policy. Sounding taken aback, Fleckenstein…

    Business Insider
  • Beanie Babies creator's sentence debated in court

    Beanie Babies creator's sentence debated in court CHICAGO (AP) — Federal prosecutors seeking to put the billionaire creator of Beanie Babies in prison for hiding millions in Swiss bank accounts told appellate court judges Wednesday that the toymaker's sentence of probation threatens to erode the…

    Associated Press
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

    Reuters
  • Gilead Stock Is Falling On These Drug Setbacks

    Gilead Stock Is Falling On These Drug Setbacks Gilead Sciences (GILD) shares are backsliding Wednesday on news that the patient drop-out rate for hepatitis C drug Sovaldi is quadruple that of clinical trials. In addition, the biotech's Phase 2 study results

    Investor's Business Daily
  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • 1 Tip To Lose Belly Fat

    It's Hollywood's Hottest Diet And Gets Rid Of Stubborn Fat Areas Like Nothing Else.

    AdChoicesagoodcooksSponsored
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

    Reuters
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • Don't buy Alibaba stock: 'Dean of Valuation'

    Investors should steer clear of Alibaba , valuation expert Aswath Damodaran said Wednesday. On CNBC's " Fast Money ," Damodaran, a professor of finance at New York University's Stern School of Business, noted that he was looking at Alibaba stock from the perspective of a long-term investor, not a…

    CNBC
  • Norwich Information Security MS

    Online, accredited, top ranked. NSA Center of Academic Excellence. Recognized by the Department of Homeland Security. Download your free brochure!

    AdChoicesNorwich UniversitySponsored
  • 6 Things Debt Collectors Wish You Knew

    The work debt collectors do is not popular, and has become increasingly derided by those who don’t like what we do or simply don’t know the facts about debt collection. Too often, debt collection is painted with a broad brush to create a portrait that isn’t accurate, and doesn’t properly educate…

    Credit.com