Shares of sugar companies surged up to 6% on Monday after the food ministry reversed its earlier ban on using sugarcane juice for ethanol production. Bajaj Hindusthan Sugar rose 6.07%, Dhampur Sugar Mills moved up 5.65%, while Shree Renuka Sugars, Magadh Sugar, and Uttam Sugar advanced almost 4.5%. Balrampur Chini, Dalmia Bharat Sugar, and Avadh Sugar gained between 2% and 3.5%. The government permitted the diversion of 1.7 million metric tonnes of cane juice and B-heavy molasses for ethanol production. This decision has been welcomed by investors, who are enthused by the diversification of sugar companies into the ethanol business.
The earlier ban on using sugar for ethanol production was due to supply issues in Maharashtra and Karnataka. However, with the removal of this ban and the anticipation of higher prices, investors have shown renewed interest in sugar stocks. The move is also aimed at curbing food inflation. The positive news for sugar companies comes at a time when there are concerns of a contraction in sugar production in Maharashtra and Karnataka due to scanty rainfall. Analysts predict that the reduced supply of sugar from these states will lead to a rise in sugar prices.
Arun Kejriwal, founder of Kejriwal Research and Investment Services, said, “The notification by the government has removed the earlier negativity from sugar stocks. The move was made in anticipation of higher prices and to curb food inflation.” Manish Bhandari, CEO of Vallum Capital, added, “Sugar prices are likely to rise due to contraction in supply from Maharashtra and Karnataka.”
In conclusion, sugar stocks have rallied due to the reversal of the ban on using sugarcane juice for ethanol production and the anticipation of supply disruptions from Maharashtra and Karnataka. Investors are optimistic about the diversification of sugar companies into the ethanol business and are hopeful that this will lead to higher prices. The government’s decision to allow the diversion of cane juice and B-heavy molasses for ethanol production has been well-received in the market.
