The Centre has banned the use of 'sugarcane juice and sugar syrup' for ethanol production in the 2023-24 supply year that started this month. The decision has been taken to maintain adequate sugar availability for domestic consumption and to keep prices under check. As a result, sugar stocks have been under pressure since the early morning trade.

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Shares of Dalmia Bharat Sugar and Industries, Triveni Engineering Industries, Dhampur Sugar Mills, Shree Renuka Sugars and Balrampur Chini Mill were down by over 3 per cent to 6 per cent at the end of the trading session on Thursday. 

The downfall comes after in a letter issued to all sugar mills and distillers, the Food Ministry directed them "not to use sugarcane juice /sugar syrup" for ethanol production during the 2023-24 ethanol supply year (December-November). The directive was issued as per clauses 4 and 5 of the Sugar (Control) Order 1966.

The decision by the ministry comes in the backdrop of an estimated fall in sugar production in the 2023-24 marketing year (October-September).

According to a Reuters report, the government's move will be in line with the decline in the production of sugar because of below-normal rainfall in key growing states. With this move, the centre will lower the diversion for ethanol, which will help the world's second-biggest sugar producer increase the output of the sweetener.

According to Reuters, the government's move is a setback for the industry, which has invested billions of dollars in the last five years to increase ethanol production capacity. However, the government has allowed the use of 'B-molasses' for ethanol production in 2023-24.

While sugar stocks were under pressure on Thursday, shares of BCL Industries jumped over 8 per cent to hit a 52-week high of Rs 76.30. This is mainly because the company is one of the largest grain-based manufacturers of ethanol in India and the latest decision of the government may not impact it as much as other companies who have been producing ethanol from sugarcane juice and sugar syrup. According to experts, the latest decision will increase dependency on grains for manufacturing ethanol and may give the company the edge in the competition. 

It is pertinent to mention that to achieve 20 per cent blending by 2025, the Department of Food & Public Distribution modified the earlier scheme for extending financial assistance to project proponents for enhancement of their ethanol distillation capacity or to set up distilleries for producing 1st Generation (1G) ethanol from feedstocks such as cereals (rice, wheat, barley, corn and sorghum).

The scheme also encourages farmers to diversify their crops to cultivate particularly maize/corn which needs less water compared to sugarcane and rice. It would enhance the production of ethanol from various feedstocks thereby, facilitate in achieving blending targets of ethanol with petrol and would reduce import dependency on crude oil.