A mix of falling global oil prices and a likely bumper sugar production in Brazil is going to further sharpen the competitive edge of India’s cost-efficient and employment-intensive pharmaceutical and textiles industries in the coming months. The reason - the likely increased availability of ethanol, a key raw material used in making a large number of every day products including medicine, garments, paints and nail polish, at lower prices.
The decline in global crude oil prices to near $50-a-barrel level now from last year’s $70, has made it less profitable for sugar mills in Brazil the largest sugar producer in the world - to divert ethanol to the automibile sector as a fuel additive. This would lead to greater availability of ethanol for industrial use even as Brazil is expected to record a bumper production in the season starting April, according to pharmaceutical experts. They anticipate that cheaper ethanol would be available for imports in the coming months.
Gasoline sold in Brazil contains at least 20% ethanol. The mills in that country have the flexibility to divert sugar cane juice to different streams and regulate the production of sugar and molasses, the raw material for ethanol. The mill owners adjust the production depending on the prices of sugar and crude oil. India mills do not have this flexibility and molasses is obtained as a by-product equivalent to 40% of the sugar produced.
The Indian industry's calculation therefore depend on these variables, some of which are volatile. While the availability of ethanol for industrial use depends on these variables, government's policy interventions are very crucial for stable supplies. To a large extent, it would hinge on the proposed reduction in the 10% customs duty on ethanol for industrial use by half, said Noida based pharma major Jubilant Organosys executive director-chemicals S N Singh.
The chemicals ministry had recommended this to the finance ministry along with similar reductions on many other feedstocks used in the industry. Now industrial alcohol is imported at about Rs 20.50 a litre, excluding duties. Till September this year, the country is expected to produce about 23 lakh tonne sugar, and molasses equivalent to 40% of it. From this, about 200 crore litres of ethanol is likely to be produced. If the projections trun out to be true, if ould be just enough to meet the 97 crore litres needed by the industrial sector and 85 crore litres needed by the potable sector, which includes country liquor as well as Indian-Made Foreign Liquor. The ethanol blending programme has triggered further demand. If it takes off nation-wide soon, there would be an additional requirement of about 64 crore litres, said Mr Singh. The government's recent decision to lift the ban on sugar exports, however, is not likely to have any impact on molasses availability. but, it is likely to benefit small sugar mills and the cooperative sugar factories in Maharashtra that have access to ports neraby. Since global prices have fallen to about $330 a tonne, which is close to domestic prices, large sugar factories away from ports may not find it very attractive to export sugar.