Shares of sugar companies fell nearly 7% on Monday after the government directed oil marketing companies to stop using sugar-based products for ethanol production in the 2026/27 supply year, reported The Economic Times. The move is aimed at increasing domestic sugar supplies and easing prices, but it has raised concerns about the earnings of sugar mills that have invested in ethanol production.
Bajaj Hindusthan Sugar led the losses, falling over 7%, followed by Shree Renuka Industries, which declined more than 6%. Balrampur Chini Mills dropped 4%, while Triveni Engineering and Industries fell over 3%. EID Parry and Dhampur Sugar declined more than 2% each.
The latest ethanol tender excludes supplies made from sugarcane juice, sugar syrup and B-heavy molasses, a by-product of sugarcane crushing that contains a high amount of sugar.
The decision limits the ability of sugar mills to shift sugarcane and molasses between sugar and ethanol production depending on market conditions. This could weigh on margins and returns from investments in ethanol-making capacity.
The Centre’s move comes as India, the world’s largest sugar consumer, looks to increase domestic availability and bring down prices that have reached record highs. Concerns that weak rainfall in key sugar-producing states could affect output have also added to supply worries, Reuters cited analysts at Motilal Oswal and Choice Broking as saying.
Sugar consumption in India typically rises between August and November as festivals such as Ganesh Chaturthi, Dussehra and Diwali drive demand for sweets, biscuits and other confectionery products.
Ahead of the festive season, the government reduced the period for which sugar dealers can hold stocks to 15 days and capped their holdings at 1,000 quintals. The restrictions, effective from October 15 to November 30, 2026, are intended to prevent hoarding and ensure the steady movement of supplies through the market.
Global supply concerns have also increased. Brazil, the world’s largest sugar producer, has warned of harvest delays due to adverse weather. Its suspension of bi-weekly harvest and production reports has further reduced visibility on the global supply outlook.
In Europe, heatwaves and El Nio conditions across the European Union and the UK have raised concerns about tighter supplies. Regional sugar output estimates have been cut to 14.98 million tonnes. Thailand, the world’s third-largest sugar producer, has also lowered its projected output by 15.6% to 9.5 million tonnes.
Weather-related disruptions across major producing regions have changed expectations for the global sugar market. While a surplus was anticipated at the start of the year, concerns over production have raised the possibility that supply could fall short of demand.
According to Bloomberg, sentiment among sugar traders has turned more positive. Commodity Futures Trading Commission data as of September 29 showed that net short positions in raw sugar had fallen to their lowest level in more than 21 months. This suggests that large speculators have significantly reduced their bets on falling prices.
In Brazil, persistent heavy rainfall has disrupted sugarcane harvesting and milling. Green Pool Global has cut its sugar production estimate for the 2026/27 season in Central-South Brazil by 3%.
Europe’s production outlook is also challenging, with estimates from the EU Monitoring Agricultural Resources Unit indicating that the region’s crop could be around 11% below its five-year average.
These weather-related risks have added to uncertainty over global sugar supplies, even as the Indian government’s latest restrictions aim to ensure more sugar is available in the domestic market.