India's ethanol plan could drive a sugar bull market -report

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A farmer harvests sugarcane in his field at Motisir village
A farmer harvests sugarcane in his field at Motisir village in the desert state of Rajasthan, India October 27, 2016. REUTERS/Himanshu Sharma

NEW YORK, June 21 (Reuters) - The Indian government's plan to gradually increase ethanol blending in gasoline, as a way to cut pollution and reduce its oil import bill, could be the largest change in the global sugar market since Europe's sugar reform, and possibly drive a bull market.

According to a report released on Monday by food trader and supply chain services provider Czarnikow Group, India's ethanol program will lead the government to end sugar export subsidies and erase exportable sugar volumes from the country, currently the second-largest producer after Brazil.

Czarnikow's chief analyst Stephen Geldart said in the report that India's plan to push for a 20% ethanol blend to gasoline as soon as 2023, compared to only around 5% currently, will lead to the production of 6 billion liters of ethanol from sugar cane juice and molasses, "reducing local sugar production by more than 6 million tonnes".

"By 2025, India will swing from making at most 33 million tonnes of sugar a year to 27 million tonnes. With consumption today at around 25 million tonnes and likely to grow in the future, India will no longer be a major surplus sugar producer and exporter," the analyst said.

Geldart compares the Indian case with the European sugar policy reform between 2002 and 2008, when cuts to export subsidies and production in the continent led to a strong sugar market rally.

The report says that as gasoline demand increases in India, by 2030, the country will need to produce 13 billion liters of ethanol to meet the E20 blending, diverting more than 10 million tonnes of sugar production.

"As we saw in 2008, the world sugar market will therefore become less well-supplied and more responsive to price," Geldart said, adding that the market will become vulnerable to any production shock in one of the largest producers.

Reporting by Marcelo Teixeira Editing by Bernadette Baum

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Thomson Reuters

Covers agricultural commodities and biofuels, including production, trade and transportation, based in New York. Former Brazil correspondent and climate/environment reporter. Brazilian, holds a Bachelor of Journalism degree and has done post-graduate studies in Environmental Reporting from Germany's InWent Institute and Foreign Policy and International Political Economy from Harvard University. Avid soccer and tennis player.

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