Saturday, November 11, 2006

India's Sugar Mills Turn to Ethanol to Meet New Rule

Bajaj Hindusthan Ltd., India's biggest sugar maker, and rival mills plan to more than double sales of ethanol to meet government alternative fuel targets, helping boost earnings as prices of the sweetener slump.

The mills will get an extra 12 billion rupees ($263 million) in revenue from ethanol over the next year, S.L. Jain, director general of Indian Sugar Mills Association, said. India passed a law in May requiring gasoline to be mixed with 5 percent ethanol starting this month.

India joins the U.S. and the European Union in increasing ethanol usage following a surge in crude oil prices. Bajaj, one of the world's 10 biggest ethanol makers, is seeking to almost triple biofuel production as raw sugar prices in New York have fallen 41 percent from a 25-year high in February.

``Ethanol will provide constant revenue when sugar prices have declined,'' Anoop Bhaskar, a fund manager at Sundaram BNP Paribas Mutual Fund in Chennai, said yesterday. The fund held 721,374 shares of Bajaj Hindusthan on Sept. 30, according to Bloomberg data. Ethanol in India is made from molasses, a sugar byproduct.

Sugar for March delivery rose 1.84 percent to 12.18 cents a pound on the New York Board of Trade yesterday. Raw sugar was the best performing commodity in 2005. Ethanol prices in the U.S. averaged $2.22 a gallon on Nov. 9. Prices reached a record $4.23 a gallon in June.

Investors including Bill Gates, Richard Branson and Vinod Khosla are pouring millions of dollars into biofuel companies on optimism that use of alternative fuels will gain as energy costs rise and countries tighten pollution control norms.

U.S., Europe

About two-fifths of gasoline sold in the U.S. contains 10 percent ethanol, while the European Union wants every tank of fuel to consist of 5.75 percent biofuels by 2010. A fifth of Brazil's road fuel comes from ethanol and South Africa may order the use of ethanol-blended fuel next year.

Sugar millers will sell oil refiners 550 million liters of the additive at 21.5 rupees a liter, 15 percent more from a year ago, the association's Jain said on Nov. 4. Refiners will start selling blended fuel across India in two weeks, he said.

Bajaj Chief Executive Kushagra Bajaj, 29, has overseen a 15-fold increase in the value of the family controlled company in three years, to almost $1 billion, as sugar prices more than doubled to a record in May.

New Customers

Bajaj, whose 320,000 liters a day capacity will double by September next year, has bid for ``maximum quantity'' needed by refiners, Ravi Gupta, president of the alcohol business, said by e-mail. Ethanol will bring in 22 percent of the company's profit in three years, from 10 percent now, Nomura International said in a report.

``The ethanol program has created a new class of customers for us on a sustained basis,'' said Kishor Shah, chief financial officer at Balrampur Chini Mills Ltd., India's second-biggest sugar maker. The company is raising its ethanol-making capacity by almost half to 320,000 liters a day, he said.

Global ethanol demand will rise 51 percent to 54.5 million tons by 2010, with Asia using 7.5 million tons, four times the current demand, according to Noble Group Ltd.

Indian distilleries can produce up to 1.3 billion liters a year of ethanol suitable for use as fuel, Jain said.

Shares Slump

Bajaj Hindusthan shares have slumped 55 percent since May, while those of Balrampur Chini have halved after sugar prices fell from records on forecasts of bigger harvests in Brazil and India, the world's biggest producers.

Refined sugar for March delivery rose 0.3 percent to $376.2 a ton on London's Euronext.liffe yesterday. White sugar reached a record $497 on May 12.

``Global sugar prices appear to be unsustainably low,'' JPMorgan India Pvt. analysts led by Vijay Chug said in an Oct. 18 report. ``We expect prices to improve by at least 20 to 25 percent over the next six to 12 months.''

Bajaj may say net income climbed 77 percent to 2.48 billion rupees in the year ended Sept. 30 from a year earlier, according to an average estimate by Thomson Financial. Profit may surge to 4.32 billion rupees in the year to Sept. 30, 2007. The company will announce fourth-quarter earnings next month.

India's annual gasoline consumption may rise by more than a third to 12.24 million tons by 2012, fuelled by car sales that are forecast to rise 10 percent annually until 2010, according to the Society of Indian Automobile Manufacturers.

Refiners may require 1.1 billion liters of ethanol starting June 2007 after the government doubles the additive's content to 10 percent, Petroleum Ministry Secretary M.S. Srinivasan said on Nov. 8. That will help expand sales for sugar mills.

``One hopes refiners will increase the blending next year, in which case quantities needed will be much higher,'' Narendra Murkumbi, managing director of Sree Renuka Sugars Ltd., India's third biggest producer by market value, said in Nov. 6 interview.

Sree Renuka's ethanol capacity is being expanded nine-fold to 110 million liters annually by September next year, he said.

To contact the reporter on this story: Pratik Parija in New Delhi at .

courtesy:- bloomberg


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