Sugar Stocks Surge as Government Mulls Ethanol and MSP Price Hikes

The sugar sector saw significant gains in Friday’s morning trading session, as shares of major sugar companies, including Balrampur Chini Mills, Bajaj Hindusthan Sugar, and Shree Renuka Sugars, saw an uptick of up to 8%. This surge in investor interest came after Food Minister Pralhad Joshi hinted at potential government actions to increase ethanol prices and the minimum selling price (MSP) of sugar.

Government's Deliberation on Ethanol and Sugar Prices

Minister Pralhad Joshi provided insights into the government's approach towards the sugar export market and its pricing strategy. He noted that a decision regarding sugar exports would be made after reviewing the production forecasts and sugar availability for the next year.

Furthermore, Joshi mentioned that a committee of secretaries is currently evaluating a proposal to revise the MSP for sugar, which has been static at Rs 31 per kg since February 2019.

Optimism for the 2024-25 Sugar Season

Looking ahead, Joshi expressed optimism about the sugar production prospects for the 2024-25 season, which begins in October. He attributed this positive outlook to the favourable monsoon conditions.

Additionally, it was highlighted that ethanol prices, which are determined by the government and have remained unchanged since the 2022-23 ethanol supply year, could see an adjustment. The current ethanol pricing from various sources such as cane juice, B-Heavy molasses, and C-Heavy molasses stands at Rs 65.61, Rs 60.73, and Rs 56.28 per litre, respectively.

Conclusion: A Sweet Outlook for Sugar Stocks

Today’s announcement comes after the Department of Food & Public Distribution's (DFPD) decision on September 16, allowing sugar mills and distilleries to use sugarcane juice and B-heavy molasses to produce Rectified Spirit (RS) and Extra Neutral Alcohol (ENA). With 4-4.5 million tonnes diverted for ethanol production and a closing stock of 8.3 million tonnes, approximately 2 million tonnes will be available for export in the 2024-25 season.

Additionally, the potential adjustments to ethanol and MSP prices could continue to drive investor interest and growth in the sugar sector. As government policies align with favourable market conditions, companies within this sector may experience sustained benefits, making them attractive prospects for long-term investors.

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