Insight Focus
The Indian government has permitted its mills to export 1.5 million tonnes in 2025/26. However, at current prices, exports pay less than domestic sales. Diversion of sucrose to ethanol will not increase in 2025/26.
India’s 2025/26 Crushing Season Begins
India’s 2025/26 sugar season is underway and, although it is early, initial results align with our expectations that there will be a big increase in sugar output. 325 mills are in operation compared to 144 this time last year, and recovery rates have also been higher. Overall, mills produced just over one million tonnes of sugar by mid-November (up 40% year-on-year).
Our latest estimate of Indian sugar production in 2025/26 is 32.8 million tonnes, a 25% increase from last year. With consumption at 28-29 million tonnes, this leaves India with a comfortable enough surplus to export sugar this year.
Indeed, the government last week permitted Indian mills to export 1.5 million tonnes and indicated that additional quantities could be granted in March 2026. However, at current prices, Indian mills will have to accept lower prices on exports than they receive on domestic sales.
Although prices within India have eased by around 9% since August, the even steeper decline in world prices has squeezed export margins. This is now the case even for regional exports of low-quality white (LQW) sugar. Until recently, margins on LQWs exports had at least been positive thanks to strong regional premiums for Indian sugar in South Asian and East African markets.
We estimate that No.5 white sugar prices would have to rise to at least USD 430/tonne to make Indian white sugar exports viable again.
Meanwhile, Indian raw sugar exports now require a No.11 price of just over 18c/lb to match the domestic market. Although this is lower than a few weeks back thanks to lower domestic prices, margins remain negative. At today’s prices, mills would lose almost 3-4c/lb on raw sugar exports compared to selling to the domestic market.
We therefore believe that at today’s prices India is unlikely to export the entire 1.5 million tonnes permitted by the government. Moreover, much of the volumes will not become available until later in 2026 once domestic sugar stocks push down local prices and mills need to liquidate stock to generate cash.
In other words, Indian sugar stocks will build, and the prospect of Indian exports will sit over the sugar market for some time to come.
What are the Latest Prospects for Diversion of Sugar to Ethanol?
In our earlier reports, we have been discussing how sugarcane ethanol in India has been losing market share to grains-based ethanol. The results of the first tender for supplying ethanol to India’s fuel blending program for 2025/26 has affirmed our view. The result of the tender indicates that sugarcane ethanol’s market share has fallen further to 28% compared to around 33% during the last two years.
As a result, we feel diversion of sugar to ethanol will now be in the lower end of our expected range of 3.5-4.0 million tonnes. This is less than the 5 million tonnes that the industry wanted to divert. The low diversion level will contribute to surplus sugar availability in 2025/26.
As well as the competition that sugarcane-based ethanol now faces from grains-based ethanol, we also consider 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).
The chart below shows revenue generated by mills in Maharashtra (the main sugar exporting region) based on the type of feedstock used. There has been no increase in government-set sugarcane ethanol prices despite the industry calling for higher prices to make ethanol production more viable. However, as domestic sugar prices have begun to weaken, incentives to divert sucrose to ethanol production are improving.
That being said, the challenge remains the competition with grains ethanol, which has suppressed the sugarcane industry’s allocation of ethanol volume to supply OMCs. However, weaker sugar prices improving incentives to produce more ethanol in Maharashtra should be a point to watch for future ethanol supply tenders.
However, this is not the case in Northern India, where sugar prices are higher than in Maharashtra. Here, it is much less attractive to divert sugar to ethanol.
Proportion of Sugar to Ethanol:
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