Pune: The sugar prices are expected to stay firm due to tight inventories, while the ethanol profitability is also expected to remain strained due to oversupply, said ratings agency Ind-Ra in a report.
“We believe that India’s sugar sector is entering a phase where tight inventories, given the modest production recovery, will keep prices strong. Moreover, shrinking spreads and oversupply are straining ethanol profitability. Despite some rebound, sugar output remains below expectations. The ethanol ecosystem faces a structural mismatch, with capacity growth outpacing demand," said Indi-Ra in a report.
“The absence of price hikes amid rising cane costs is squeezing margins for cane-based producers. Policy clarity on ethanol is key for the sector's resilience. While ethanol prices are not linked to crude oil prices, sustained high crude prices could elevate ethanol’s economic significance.
The agency expects exports to fall significantly short of the permitted 2 million tonnes on account of depressed global prices and tight domestic inventory. As a result, closing inventories are likely to remain around 5 million tonnes—marginally below normative levels—supporting healthy pricing momentum, it said.
“An 8% y-o-y increase in state advised price and a 4.4% y-o-y increase in fair and remunerative prices for SS26 are likely to raise sugar production cost largely during 2HFY26-FY27. However, firm sugar prices are likely to partially mitigate the impact with a better sugar recovery. Also, a sustained increase in crude oil prices led by the Middle East crisis could lead to Brazilian mills diverting more cane towards ethanol, driving some recovery in global sugar prices. However, exporters will face logistical disruptions and rising freight costs”, said Khushbu Lakhotia, Director, Corporate Ratings, Ind-Ra.
“The cane-based ethanol market is set to experience margin pressure in the absence of price hikes, while grain-based distilleries are emerging as the relative beneficiaries amid falling feedstock costs. The expansion of grain-based distilleries in recent times has increased the distiller’s dried grains with soluble (DDGS) output, offering a cheaper alternative to maize for poultry and animal feed. Combined with record production of maize at 42.3mnt in 2024-25, maize prices have corrected around 20% y-o-y and grain-based allocations have surged 27% y-o-y, strengthening economics for grain distillers,” the report said.
“Ethanol demand growth has slowed as India nears the 20% blending threshold, while capacity—especially grain-based—has expanded rapidly, leading to oversupply,” the report said.
According to Ind-Ra, after rapidly scaling with a CAGR of 40% over ESY20-ESY25, India’s ethanol demand growth could moderate, and scaling is constrained by vehicle compatibility challenges. “Surging grain-based capacities have created a clear oversupply, making price hikes unlikely in the current surplus environment. The India-US trade deal allows DDGS imports, which may add to its supply and lead to muted maize prices in the near term, supporting the profitability of grain-based distilleries,” the report stated.
“The sugarcane-based producers will continue to face profitability pressure, as cane costs have risen but ethanol prices remain unchanged for the past three years. Capacity utilisation and profitability are unlikely to witness a sustainable improvement without a policy direction on higher blends and/or diversification of end-use pathways”, said Mahima Jain, Analyst, Corporate Ratings, Ind-Ra.
“We believe that India’s sugar sector is entering a phase where tight inventories, given the modest production recovery, will keep prices strong. Moreover, shrinking spreads and oversupply are straining ethanol profitability. Despite some rebound, sugar output remains below expectations. The ethanol ecosystem faces a structural mismatch, with capacity growth outpacing demand," said Indi-Ra in a report.
“The absence of price hikes amid rising cane costs is squeezing margins for cane-based producers. Policy clarity on ethanol is key for the sector's resilience. While ethanol prices are not linked to crude oil prices, sustained high crude prices could elevate ethanol’s economic significance.
The agency expects exports to fall significantly short of the permitted 2 million tonnes on account of depressed global prices and tight domestic inventory. As a result, closing inventories are likely to remain around 5 million tonnes—marginally below normative levels—supporting healthy pricing momentum, it said.
“An 8% y-o-y increase in state advised price and a 4.4% y-o-y increase in fair and remunerative prices for SS26 are likely to raise sugar production cost largely during 2HFY26-FY27. However, firm sugar prices are likely to partially mitigate the impact with a better sugar recovery. Also, a sustained increase in crude oil prices led by the Middle East crisis could lead to Brazilian mills diverting more cane towards ethanol, driving some recovery in global sugar prices. However, exporters will face logistical disruptions and rising freight costs”, said Khushbu Lakhotia, Director, Corporate Ratings, Ind-Ra.
“The cane-based ethanol market is set to experience margin pressure in the absence of price hikes, while grain-based distilleries are emerging as the relative beneficiaries amid falling feedstock costs. The expansion of grain-based distilleries in recent times has increased the distiller’s dried grains with soluble (DDGS) output, offering a cheaper alternative to maize for poultry and animal feed. Combined with record production of maize at 42.3mnt in 2024-25, maize prices have corrected around 20% y-o-y and grain-based allocations have surged 27% y-o-y, strengthening economics for grain distillers,” the report said.
“Ethanol demand growth has slowed as India nears the 20% blending threshold, while capacity—especially grain-based—has expanded rapidly, leading to oversupply,” the report said.
According to Ind-Ra, after rapidly scaling with a CAGR of 40% over ESY20-ESY25, India’s ethanol demand growth could moderate, and scaling is constrained by vehicle compatibility challenges. “Surging grain-based capacities have created a clear oversupply, making price hikes unlikely in the current surplus environment. The India-US trade deal allows DDGS imports, which may add to its supply and lead to muted maize prices in the near term, supporting the profitability of grain-based distilleries,” the report stated.
“The sugarcane-based producers will continue to face profitability pressure, as cane costs have risen but ethanol prices remain unchanged for the past three years. Capacity utilisation and profitability are unlikely to witness a sustainable improvement without a policy direction on higher blends and/or diversification of end-use pathways”, said Mahima Jain, Analyst, Corporate Ratings, Ind-Ra.