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India is aiming to promote the use of ethanol as a cleaner fuel option over gasoline as far as carbon dioxide emissions are concerned. With the government increasing the price of ethanol we give you the impact of ethanol price hike on farmers, suppliers, OMCs and the chemical market in our latest chemical industry news.

The government has approved a 5 percent hike in ethanol in a move to benefit the fuel suppliers and fixed the price at 40.85 INR per liter (before tax) for the year 2017-18. The government is implementing the Ethanol Blended Petrol (EBP) program under which Oil Marketing Companies (OMCs) sell EBP with percentage of ethanol up to 10%. Additionally excise duty, GST/VAT and transportation charges on the fixed price will be paid by OMCs. The EBP program was launched in 2003 and has been extended to the 21 states and four Union Territories to promote the use of alternative and environment-friendly fuels. This will reduce the country's import dependence for energy needs.

Sugar mills are the largest producer of the chemical ethanol and will benefit the most. Unlike country like Brazil, which uses sugarcane juice to produce ethanol Indian sugar mills uses molasses to produce the chemical. Molasses is a byproduct of sugar-making process, so an increase in production of sugar will boost ethanol output. The increase in price for ethanol is a major relief for farmers as the sugar companies will pay the farmer on time for the sugarcane supplies.

Despite the EBP program being promoted by Prime Minister Narendra Modi the OMCs face several hindrances to source the sugar byproduct at an economical rate. The chief reason being the high state duty it attracts because of its use in heavily taxed liquor industry. Sugar manufacturing companies choose to sell the chemical to spirit distilleries as these companies offers a high pay and a quicker deal. The loss of ethanol to liquor companies hinders its acceptance as an automotive fuel.

The price hike had a positive impact on the shares of sugarcane companies Shree Renuka Sugars ltd, Bajaj Hindustan Sugar Ltd, and Balrampur Chinni Mills Ltd in the range of 4.7 % to 12.5 %.

From the Chemical Industry Market News the hike in ethanol prices will have an adverse effect on the chemical and alkali manufacturers as the new price will increase the cost of production. Like in the paint industry segment the companies will find it difficult to pass on the increased cost to their consumers.

India at present requires 4 billion liters of ethanol across chemical industry, alcohol and petrochemical industry.