Insight Focus
Domestic sugar prices have increased in response to talk of a smaller crop. Stronger domestic prices have made sugar exports even less attractive. If the price strength persists, it could impact future incentives to divert sucrose to ethanol.
Indian Sugar Prices Strengthen as Industry Talks of Smaller than Expected Crop
By the end of January, India had produced 19.3 million tonnes of sugar, which is the joint highest it’s ever been by this time of year. These results align with our view that India could increase sugar output by 25% year-on-year.
In the last couple of weeks, the industry has reported that late and heavy rains last year induced cane to flower early in Maharashtra, and this has negatively impacted ratoon yields. As a result, some in the industry have begun talking down final output.
As of January 31, all 206 mills in Maharashtra were still in operation and, in fact, this is two more mills than a fortnight earlier. We therefore think it’s too early to revise our number.
Talk of lower sugar output has nevertheless pulled up Indian sugar prices. Until mid-January, prices had been gradually falling for almost four months. However, they have since strengthened by 5%.
In contrast, world sugar prices weakened during this time. As a result, margins on exports have become less attractive.
Sugar Exports Become Less Attractive
The government has permitted Indian mills to export 1.5 million tonnes and there is still talk of an additional 0.5 million tonnes being granted. However, we hear only around 300,000 tonnes have been contracted so far. This isn’t surprising considering the poor margins that exports offer.
Stronger domestic prices mean these margins have worsened and this will further slowdown exports. We estimate exports currently pay mills in Maharashtra and Karnataka around USD25 per tonne less than domestic sales.
Meanwhile, Indian raw sugar exports now require a No.11 price of almost 18c/lb to match the domestic market. This means mills would lose over 3.5c/lb on raw sugar exports. Therefore, we still don’t see India exporting raw sugar this year.
Meanwhile, Indian raw sugar exports now require a No.11 price of almost 18c/lb to match the domestic market. This means mills would lose over 3.5c/lb on raw sugar exports. Therefore, we still don’t see India exporting raw sugar this year.
Combined with weak exports, we believe slow domestic sales mean that India will still go into 2026/27 with high carry-over stocks, even if we do have to revise sugar output down. From the world market’s perspective, the story hasn’t changed – Indian export availability will continue to weigh on the market and counter price rallies.
The Impact on Incentives to Divert Sucrose to Ethanol
The results of the first tender for supplying ethanol to India’s fuel blending program for 2025/26 indicate sugar mills will only divert around 3.5 million tonnes of sucrose to ethanol this year. This is lower than the 5 million tonnes that the industry wanted to divert and reflects sugarcane ethanol losing market share to grains-based ethanol.
Although the bulk of 2025/26 ethanol volumes have already been finalised, the attractiveness of ethanol vs. sugar remains an import issue to follow, particularly as there is talk of the government increasing sugarcane ethanol’s allocation in the fuel ethanol program.
The chart below shows revenue generated by mills in Maharashtra (the main sugar exporting region) based on the type of feedstock used. We can see that incentives to divert sucrose to ethanol production had been improving. However, the recent domestic sugar price strength has reversed this trend.
If weak exports and domestic sales do build up stocks, we’d expect sugar prices to come under pressure again later in the year.
Aside from increasing sugarcane’s allocation in fuel blending program, we should remember the government is looking at other measures to boost the sugarcane ethanol sector. These include increasing procurement prices of sugarcane ethanol and increased blending rates.
Therefore, we’ll continue to monitor the ethanol vs. sugar trade-off and analyse its influence over sugar output and export availability.
For example, in Northern India, where sugar prices are higher than in Maharashtra, it is even less attractive to divert sucrose to ethanol. For diversion to ethanol to increase in this part of the country, the price of ethanol relative to sugar may have to rise much more than today’s levels.
Appendix
Our analysis considers the returns that mills earn from producing ethanol at the expense of sugar. Many mills/distilleries have a choice over which feedstocks they use to make sugar or ethanol based on the relative prices of ethanol paid by the oil marketing companies (OMCs), which is summarised below:
Proportion of Sugar to Ethanol:
