Insight Focus
Sugar export margins have improved in the past week. This could encourage mills to ship the new 0.5 million export quota, particularly as they may be under pressure pay farmers for cane. For the conflict in the Persian Gulf to lead to more ethanol production the government will need to increase ethanol prices.
Smaller-than-expected Sugar Output Supports Indian Domestic Prices
By the end of February, India had produced 24.6 million tonnes of sugar. However, recent crushing rates have tailed off, a trend that’s been widely attributed to early flowering of sugarcane induced by heavier than normal post-monsoon rains.
However, there are also reports of sugarcane being diverted to supply jaggery producers rather than sugar mills. If this is the case, it raises concerns about mills’ financial ability to pay farmers for cane, as well as farmers’ capacity to hold out for delayed cane payments. This is because jaggery producers pay farmers upfront whereas sugar mills tend to build up arrears to farmers that they clear over time. Higher cane prices paid by sugar mills usually mean farmers would rather hold out for payment rather than sell to jaggery producers for cashflow.
We have revised down our Indian sugar production estimate to 30.2 million tonnes based on the number of mills that are still in operation and their likely production during the rest of the season. However, if the recent fast pace of mill closures continues, we may need to revise lower once more.
Poor crop prospects have supported Indian sugar prices at close to INR 38,000/tonne (ex-mill, Maharashtra) since the start of February.
With world sugar prices remaining weak, this means exports have been unattractive compared to the domestic market for much of the last month.
The situation has changed in the last few days reflecting the weaker Rupee and stronger No.5 prices. The Indian Rupee has weakened a little (1%) since the start of conflict in Persian Gulf. The Indian economy is highly vulnerable to rising energy prices due to its high dependence on imported oil.
Export Margins are Still Tight
The government had initially permitted Indian mills to export a 1.5 million tonne quota. A second quota of 0.5 million tonnes has now been granted.
The second tranche allows mills to apply as per their own needs. In contrast, the first 1.5 million tonne quota was distributed amongst all the mills in country, leaving those interested in exporting to buy/swap their quotas with those less well placed to export. The removal of this cost could see exports under the new quota be viable at a lower price than earlier.
However, we think only 400,000 tonnes of white sugar have been exported so far. This isn’t surprising considering the poor margins for exports. If the recent improvement in export margins is sustained, we could see the additional 0.5 million tonnes from the second quota be shipped, particularly if mills are indeed under pressure to generate cash to pay farmers.
Meanwhile, Indian raw sugar exports now require a No.11 price of almost 17.5c/lb to match the domestic market. As this means mills would lose over 3 c/lb on raw sugar exports, we still don’t see India exporting raw sugar this year.
Weak Consumption will Lead to Increased Stocks
Indian sugar consumption remains weak. The government-set sales quota for March was 2.25 million tonnes, which means the cumulative total for the year is still 3% lower than last year, which itself was 5% lower than the year before. As the quotas dictate how much sugar mills must sell to the domestic market each month, declining quotas indicate weak consumption.
Combined with weak exports, we believe slow domestic sales mean that India will go into 2026/27 with higher carry-over stocks.
Incentives to Divert Sucrose to 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 for 2026/27. This is particularly so given the impact the conflict in the Persian Gulf has had on world oil prices, which have rallied back to around USD100/barrel for the first time in almost four years.
There was already talk of the government increasing ethanol blending levels in petrol to simultaneously reduce India’s dependence on imported oil as well as support ethanol producers to better utilize their capacity. Recent developments will add momentum to any such policy moves.
However, as things stand, firm domestic sugar prices mean that mills have limited incentives to divert sucrose to ethanol production. For this to change, either sugar prices will need to weaken, or the government will need to increase ethanol prices that it sets.
If high oil prices are sustained, the government may be willing to increase ethanol prices to encourage production, reduce the oil import bill and protect the economy from inflation.
Developments in India’s ethanol policy could therefore have significant implications for India’s sugar output and global market balances in 2026/27.
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:
