Ethanol prices to be lower than interim price?
New Delhi: The party time seems suddenly over. Not only did food minister Sharad Pawar rule out implementing sugar sector decontrol anytime soon, but persistently nosediving prices over the last month have sharpened apprehensions within the sugar industry over Saturday's meeting oft the expert panel on ethanol headed by Plan panel member Dr Saumtira Chaudhury.
The panel is authorised to come up with a long term formula for fixing the price of ethanol and to periodically review the formula but indications are that the price for ethanol will be lower than the interim price of Rs 27/litre fixed by the government.
Current indications from officials are that ethanol price could be lower by upto Rs 2/litre comapred to the interim price. Panel head Dr Chaudhury is expected to circulate the final draft of his report to the stakeholders, including OMCs, the sugar, alcohol and chemcial industries, farmers groups and representatives of all relevant government ministries at Saturday's meeting.
The Chaudhury panel had, in the first part of its controversial draft report several weeks ago, suggested that based on the total availability of ethanol in the country, the quantum earmarked for the mandatory Ethanol Blending Programme (EBP) should be much lower. Additional quantum to the EBP should be earmarked post a review of sugarcane acreage and output by March 2011, after ascertaining that allocation to the EBP did not jeopardise the alcohol or the chemical industry.
An irate sugar industry had charged at the time that it was not consulted extensively and had approached minister Pawar on the contentious issue. The minister shot off a letter to PM Manmohan Singh and the food ministry shot off a missive to the plan panel deputy chief contending that Dr Chaudhury's had exceeded his brief by going into the ethanol availability issue. The pitch an! d stakes were raised high and the PMO is still to reply on the subject.
On its part, the sugar industry had suggested three different formulae to the panel for deriving the price of ethanol for the EBP, including the landed price of imported ethanol from Brazil (Rs 31/lt) and the production price for domestic sugar industry after it transformed rectified spriit to blending-ready ethanol (Rs 29/lt).
But the jitteriness in the industry is excaberated by the fact that of the 17lakh tonne of sugar release ordered by the governme to the open market for the month of January, less than half has by now been offloaded by mills on account of very slim demand. That would mean that over 9lakh tonnes of sugar will have to be sold by the month end by mills unless the food ministry chooses to extend the time limit fo rthe January quota sale into the first week of February.
That hasn't been done so far but ex factory sugar price has plunged to the Rs 26-27/kg range, well below the Rs 29/kg production price that the industry maintains is necessary for the market to reflect for mills to break even.
Meanwhile, the Centre has yet to set a date for the meeting of the relevant food EGoM that is expected to decide on free ( OGL )) sugar exports of 5lt already notified by the food ministry. "Unless they allow exports soon and the industry gets a good price for ethanol, we will find it very difficult to meet farmers' arrears for sugarcane and that could have its own set of impacts on acreage under sugarcane next season. We could even end up, worst case scenario, importing by 2012-13 instead of coining and implementing policy that will end the cycliity in the sugarcane crop," an official of the Indian Sugar Mills Association (ISMA) maintained.
In April, Brazil's sugar is expected to come into the global market, impacting! current high sugar prices but not very much since the crop is believed to affected by untimely rains and floods to the extent of 40%. Industry, therefore, needs to offload its sugar urgently into the global market not only to take timely advantage of the high global prices prevailing now, but also in order to peg down the possibility of a very high carryover stock of sugar into the 2011-12 sugar year. The carryover from the previous year into 2010-11 is already pegged at a high 5mt.
The falling sugar price has only added to the problems of the industry. Mid last year, some sugar mills in Gujarat, Maharastra and AP had tried to artificially set a floor price for sugar sale to tradres between Rs 27/kg around Rs 29/kg (Rs 2700-2900/qtl) in the July 23-August 31 period.
However, the Bombay Sugar Merchants' Associaiton had approached the consumer affairs ministry against this "cartelisation" by sugar mills. Consequently, the Competition Commission of India (CCI) ordered an enquiry into alleged price cartelisation. It was in the thick of this that the Cetnre had announced a price of Rs 27/lt for ethanol despite stritingent oppoistion by other stakeholders who pointed out that the market price was much lower.
The panel is authorised to come up with a long term formula for fixing the price of ethanol and to periodically review the formula but indications are that the price for ethanol will be lower than the interim price of Rs 27/litre fixed by the government.
Current indications from officials are that ethanol price could be lower by upto Rs 2/litre comapred to the interim price. Panel head Dr Chaudhury is expected to circulate the final draft of his report to the stakeholders, including OMCs, the sugar, alcohol and chemcial industries, farmers groups and representatives of all relevant government ministries at Saturday's meeting.
The Chaudhury panel had, in the first part of its controversial draft report several weeks ago, suggested that based on the total availability of ethanol in the country, the quantum earmarked for the mandatory Ethanol Blending Programme (EBP) should be much lower. Additional quantum to the EBP should be earmarked post a review of sugarcane acreage and output by March 2011, after ascertaining that allocation to the EBP did not jeopardise the alcohol or the chemical industry.
An irate sugar industry had charged at the time that it was not consulted extensively and had approached minister Pawar on the contentious issue. The minister shot off a letter to PM Manmohan Singh and the food ministry shot off a missive to the plan panel deputy chief contending that Dr Chaudhury's had exceeded his brief by going into the ethanol availability issue. The pitch an! d stakes were raised high and the PMO is still to reply on the subject.
On its part, the sugar industry had suggested three different formulae to the panel for deriving the price of ethanol for the EBP, including the landed price of imported ethanol from Brazil (Rs 31/lt) and the production price for domestic sugar industry after it transformed rectified spriit to blending-ready ethanol (Rs 29/lt).
But the jitteriness in the industry is excaberated by the fact that of the 17lakh tonne of sugar release ordered by the governme to the open market for the month of January, less than half has by now been offloaded by mills on account of very slim demand. That would mean that over 9lakh tonnes of sugar will have to be sold by the month end by mills unless the food ministry chooses to extend the time limit fo rthe January quota sale into the first week of February.
That hasn't been done so far but ex factory sugar price has plunged to the Rs 26-27/kg range, well below the Rs 29/kg production price that the industry maintains is necessary for the market to reflect for mills to break even.
Meanwhile, the Centre has yet to set a date for the meeting of the relevant food EGoM that is expected to decide on free ( OGL )) sugar exports of 5lt already notified by the food ministry. "Unless they allow exports soon and the industry gets a good price for ethanol, we will find it very difficult to meet farmers' arrears for sugarcane and that could have its own set of impacts on acreage under sugarcane next season. We could even end up, worst case scenario, importing by 2012-13 instead of coining and implementing policy that will end the cycliity in the sugarcane crop," an official of the Indian Sugar Mills Association (ISMA) maintained.
In April, Brazil's sugar is expected to come into the global market, impacting! current high sugar prices but not very much since the crop is believed to affected by untimely rains and floods to the extent of 40%. Industry, therefore, needs to offload its sugar urgently into the global market not only to take timely advantage of the high global prices prevailing now, but also in order to peg down the possibility of a very high carryover stock of sugar into the 2011-12 sugar year. The carryover from the previous year into 2010-11 is already pegged at a high 5mt.
The falling sugar price has only added to the problems of the industry. Mid last year, some sugar mills in Gujarat, Maharastra and AP had tried to artificially set a floor price for sugar sale to tradres between Rs 27/kg around Rs 29/kg (Rs 2700-2900/qtl) in the July 23-August 31 period.
However, the Bombay Sugar Merchants' Associaiton had approached the consumer affairs ministry against this "cartelisation" by sugar mills. Consequently, the Competition Commission of India (CCI) ordered an enquiry into alleged price cartelisation. It was in the thick of this that the Cetnre had announced a price of Rs 27/lt for ethanol despite stritingent oppoistion by other stakeholders who pointed out that the market price was much lower.
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