Sugar Stocks Slide Over 5% As Government Halts Sugar Diversion For Ethanol; What Changed?
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Sugar stocks fell over 5% on October 19, with Balrampur Chini, EID Parry, Triveni Engineering, Bajaj Hindusthan Sugar, Shree Renuka Sugars and Dhampur Sugar under pressure after the government cut sugar diversion for ethanol to zero for the 2026-27 supply year.
Sugar stocks came under selling pressure on Monday, October 19, with Balrampur Chini Mills, EID Parry, Triveni Engineering and Industries, Bajaj Hindusthan Sugar, Shree Renuka Sugars and Dhampur Sugar falling between 2% and 6% in morning trade.
The selling was sharpest in Bajaj Hindusthan Sugar and Shree Renuka Sugars. Bajaj Hindusthan Sugar was down 5.22% at ₹20.14 at 10:52 am IST, while Shree Renuka Sugars fell 5.60% to ₹20.91 at 10:53 am. Balrampur Chini Mills declined 2.32% to ₹704.45 and Dhampur Sugar Mills slipped 2.69% to ₹192.36 at 10:53 am. EID Parry was down 1.53% at ₹683.55 at 10:53 am, while Triveni Engineering and Industries traded 0.42% lower at ₹249.30 at 10:52 am.
The fall came after the government directed oil marketing companies to reduce sugar diversion for ethanol production to zero for the 2026-27 ethanol supply year. The latest ethanol procurement tender does not seek supplies produced from sugarcane juice, sugar, sugar syrup or B-heavy molasses.
“The Government of India has issued directions that sugar diversion for ethanol be reduced to zero for ethanol supply year 2026-27,” the tender document said. “No offers have been sought for ethanol produced from sugarcane juice, sugar or sugar syrup and B-heavy molasses in this quantity bid tender,” it added.
The decision matters for sugar companies because ethanol has become an important part of their business over the past few years. Restricting sugar-based ethanol reduces the flexibility mills have to shift cane and molasses between sugar and ethanol depending on prices and demand. It could also affect returns on ethanol capacity built by several producers.
Why Are Sugar Stocks Falling Today?
The immediate trigger for Monday's fall is the change in ethanol procurement for the upcoming supply year.
State-run oil marketing companies have invited bids for around 11 billion litres of ethanol for the supply year beginning in November. The tender was jointly issued by Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation.
While ethanol made from sugarcane juice, sugar syrup and B-heavy molasses has been excluded, manufacturers can bid to supply ethanol produced from maize, broken rice, surplus rice procured from the Food Corporation of India and C-heavy molasses.
For sugar mills, this means less flexibility to divert cane towards ethanol during the 2026-27 supply year. The government has used surplus sugar for ethanol production over the past several years as India expanded its ethanol-blended petrol programme. India made E20, or petrol blended with 20% ethanol, the nationwide mandatory standard earlier this year.
The latest tender marks a change in that approach as the government focuses on sugar availability.
Why Has The Government Stopped Sugar Diversion For Ethanol?
The decision comes amid concerns around domestic sugar supply and prices. Sugar prices have risen more than 10% during the festive season, raising concerns over near-term food-price pressures ahead of the main crushing season, according to Siddhartha Khemka, Head of Research, Wealth Management at Motilal Oswal Financial Services.
Concerns over sugar production have also increased following weak rainfall in major producing states. The government has already taken steps to increase the availability of sugar in the domestic market. From October 15, the stock-holding period for sugar dealers was reduced to 15 days, while the stock limit was fixed at 1,000 quintals until November 30.
The Centre said while announcing those measures that it would continue to monitor the impact of uneven and deficient rainfall associated with El Niño conditions on sugarcane in producing regions and take steps to maintain a balance between domestic availability, consumer interests and sugarcane farmers.
The government has also maintained that ethanol diversion alone was not responsible for the earlier rise in sugar prices. In August, it said the share of sugar diverted towards ethanol had declined from around 12% in 2022-23 to around 9% in 2025-26, while nearly three-fourths of ethanol produced in India was coming from grains, particularly maize.
The latest tender also cuts the incentive for maize-based ethanol to ₹2.79 per litre from ₹5.79 per litre, bringing its procurement price down to ₹68.86 per litre from ₹71.86 per litre.
For sugar stocks, the focus will now shift to the progress of the 2026-27 crushing season, domestic sugar production and prices, and whether the restriction on sugar-based ethanol continues in subsequent procurement rounds.
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This article is for informational purposes only and should not be considered investment advice from Kotak Neo. For compliance T&C and disclaimers, Visit www.kotakneo.com/disclaimer
Rochelle Britto has spent 8+ years decoding India's markets, businesses, and consumer economy, reporting for ET Prime and Times Internet along the way, covering the stories behind the numbers.
A Mumbai native and perpetual planner of the next holiday, she stays far, far away from the eternal question, “Where are we going next?” When she's not chasing headlines, she's chasing new cultures, open roads, and a bit of quiet in nature.
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