India sugar stocks slide as government halts sugarcane-based ethanol diversion

Indian sugar stocks experienced a decline in early trading following the government's announcement to halt sugarcane-based ethanol diversion for the 2026/27 supply year. The government instructed oil marketing companies to cease sugar diversion for ethanol production to zero. This decision excluded supplies produced from sugarcane juice, sugar syrup, and B-heavy molasses, eliminating a significant higher-margin outlet for sugar mills.

Notable sugar mills such as Balrampur Chini Mills, EID Parry, Triveni Industries, Bajaj Hindusthan Sugar, Shree Renuka, and Dhampur Sugar all witnessed a drop of between 2% and 6% in morning trade. This move restricts companies' ability to transfer cane and molasses between sugar and ethanol production based on market conditions, potentially undermining margins and diminishing the returns on ethanol-capacity investments.

The government's decision aims to boost domestic sugar availability and alleviate record-high prices, which have surged over 10% during the festive season, causing concerns about potential near-term food price pressures before the main crushing season commences. Siddhartha Khemka, head of research at Motilal Oswal Financial Services, emphasized that the decision underscores the government's commitment to safeguarding food supplies, particularly in light of worries about reduced output due to insufficient rainfall in key producing states.