maverick
01-08-2008, 09:02 AM
Sugar-Second Coming
Sugar and Ethanol producers in the Northern States of UP and Bihar, especially Dhampur Sugar, Triveni, Upper Ganges and Oudh Sugar are looking at brighter prospects over FY09-FY11.
Drought in mid-Central States of Maharashtra, Andhra, Karnataka and Tamil Nadu is creating conditions for a rapid drop in Sugar surpluses, at a time when increasingly surpluses in Brazil are being wiped out through diversion to Ethanol.
This makes a positive case for another commodity-Sugar, which also through the Bio fuels route holds a key to Energy security.
India sugar production outlook
1) India’s sugar production may decline to 20-21mn tonne in FY09 compared to 26.5mn tonne in FY08 as crop area has fallen by 17% and climatic condition is not favorable.
2) Poor rainfall in Maharashtra/ Karnataka in current season could affect FY10 sugar production more than FY09 as it will affect the output of fresh late maturing variety crops being planted now.
World Bio fuel market
1) Usage of sugarcane as a source of energy in the form of ethanol and electricity is expanding worldwide as it is the cheapest feedstock.
2) Surplus in sugar is likely to turn into deficit mainly driven by
a. Over 20 per cent decline in sugar production in India .
b. Higher usage of sugarcane for producing ethanol in Brazil and Thailand .
c. Decline in cane area in Australia in favor of forest land due to fiscal incentives and so also in South Africa .
3) Sharp jump in cost of production of sugar driven by higher fertilizer and labor cost and even more in Brazil and Australia due to currency appreciation has created a huge entry barrier to new entrants. In Brazil cost of production for new entrant at 17 cents per pound is over 30% higher than current price of sugar.
4) Correlation of ethanol price vs sugar price and sugar price vs crude oil price is very low since early 2007. However, the correlation could improve with increase in substitutability of food and fuel. Change in regulation and logistics will be key to increasing the correlation between sugar price and crude oil price.
Indian bio fuel market and Renuka sugar strategy
1) Ethanol sales in India is growing at over 16% y-o-y driven by doubling of demand for blending with petrol. Usage as fuel at 5% blending with petrol is happening in north India, Karnataka, AP & Goa. Maharashtra is renewing its effort for implementation of 5% blending rule following default by some of the suppliers. Tamil Nadu, Kerala and West Bengal yet to implement 5% blending rule.
2) Ethanol sales in India could grow at over 15% going forward driven by (1) Wider usage of 5% blending rule in India (2) migration of some of the key states to 10% blending rules from Oct08 and (3) strong volume growth of alcohol consumption.
3) Ethanol price is likely to go up more than that of sugar price going forward as (1) negligible stock of ethanol/molasses within India compared to over six month stock available in sugar (2) imported ethanol at Rs 31.6/ltr is 25% more expensive than domestic price (3) production of ethanol could fall by over 15% in FY09.
4) Oil marketing companies are saving about Rs 29.7/litre by substituting petrol with ethanol and have huge incentive to increase the blending.
5) Renuka is geared to take the maximum advantage of rising ethanol price as (1) it has 0.25mn tonne stock of molasses and (2) it is doubling its ethanol production capacity to 900KLPD.
Sugar and Ethanol producers in the Northern States of UP and Bihar, especially Dhampur Sugar, Triveni, Upper Ganges and Oudh Sugar are looking at brighter prospects over FY09-FY11.
Drought in mid-Central States of Maharashtra, Andhra, Karnataka and Tamil Nadu is creating conditions for a rapid drop in Sugar surpluses, at a time when increasingly surpluses in Brazil are being wiped out through diversion to Ethanol.
This makes a positive case for another commodity-Sugar, which also through the Bio fuels route holds a key to Energy security.
India sugar production outlook
1) India’s sugar production may decline to 20-21mn tonne in FY09 compared to 26.5mn tonne in FY08 as crop area has fallen by 17% and climatic condition is not favorable.
2) Poor rainfall in Maharashtra/ Karnataka in current season could affect FY10 sugar production more than FY09 as it will affect the output of fresh late maturing variety crops being planted now.
World Bio fuel market
1) Usage of sugarcane as a source of energy in the form of ethanol and electricity is expanding worldwide as it is the cheapest feedstock.
2) Surplus in sugar is likely to turn into deficit mainly driven by
a. Over 20 per cent decline in sugar production in India .
b. Higher usage of sugarcane for producing ethanol in Brazil and Thailand .
c. Decline in cane area in Australia in favor of forest land due to fiscal incentives and so also in South Africa .
3) Sharp jump in cost of production of sugar driven by higher fertilizer and labor cost and even more in Brazil and Australia due to currency appreciation has created a huge entry barrier to new entrants. In Brazil cost of production for new entrant at 17 cents per pound is over 30% higher than current price of sugar.
4) Correlation of ethanol price vs sugar price and sugar price vs crude oil price is very low since early 2007. However, the correlation could improve with increase in substitutability of food and fuel. Change in regulation and logistics will be key to increasing the correlation between sugar price and crude oil price.
Indian bio fuel market and Renuka sugar strategy
1) Ethanol sales in India is growing at over 16% y-o-y driven by doubling of demand for blending with petrol. Usage as fuel at 5% blending with petrol is happening in north India, Karnataka, AP & Goa. Maharashtra is renewing its effort for implementation of 5% blending rule following default by some of the suppliers. Tamil Nadu, Kerala and West Bengal yet to implement 5% blending rule.
2) Ethanol sales in India could grow at over 15% going forward driven by (1) Wider usage of 5% blending rule in India (2) migration of some of the key states to 10% blending rules from Oct08 and (3) strong volume growth of alcohol consumption.
3) Ethanol price is likely to go up more than that of sugar price going forward as (1) negligible stock of ethanol/molasses within India compared to over six month stock available in sugar (2) imported ethanol at Rs 31.6/ltr is 25% more expensive than domestic price (3) production of ethanol could fall by over 15% in FY09.
4) Oil marketing companies are saving about Rs 29.7/litre by substituting petrol with ethanol and have huge incentive to increase the blending.
5) Renuka is geared to take the maximum advantage of rising ethanol price as (1) it has 0.25mn tonne stock of molasses and (2) it is doubling its ethanol production capacity to 900KLPD.