Global sugar sector faces ethanol crunch as India, Brazil shift output

Global sugar markets face mounting supply pressures as the world's top two producers navigate competing demands for biofuel production, with India warning that ethanol output from sugarcane juice could collapse without price support, while Brazil accelerates its shift toward fuel over food amid El Nino weather threats.

India's sugar industry is calling for significant ethanol price increases to prevent producers from abandoning biofuel manufacturing in favor of sugar, potentially limiting the country's ethanol output to just 3 billion liters from molasses alone in the 2026-27 season, Atul Chaturvedi, executive chairman of Shree Renuka Sugars, said at the Sugar, Ethanol and Bioenergy conference in Mumbai on June 12-13.

"If the price of ethanol from sugarcane juice is not jacked up, I would not be too surprised if the industry says, forget ethanol, we might as well produce more sugar," Chaturvedi said. "With El Nino sitting on our head and the cane crop not likely to be better than what it was this year, probably it's going to be lower than this year."

The warning comes as the US Department of Agriculture projects global sugar production will decrease to 184.9 million metric tons in 2026-27, with lower output in Brazil, the EU, the US and Thailand expected to more than offset higher Indian production. The International Sugar Organization projects a global supply deficit of about 262,000 mt for 2026-27, with production expected to drop by 2 million mt amid growing concern about El Nino risks.

Brazil pivot intensifies

Brazilian sugar production is expected to reach 42.5 million mt in 2026-27, a decline of 1.3 million mt from the previous season, as a greater share of sugarcane is allocated to ethanol production rather than sugar, according to the USDA.

Brazil's Center-South region sugar production is expected to total 2.08 million mt in the first half of May, marking a 14% year-over-year decrease, according to an S&P Global Energy survey of 12 analysts published June 2.

Kona Haque, head of Research at ED&F Man, said Brazil's production allocation between sugar and ethanol will be critical to global supply dynamics. "We have to work through the Brazilian crop still because it's a big one," Haque said at the Mumbai conference.

The dual pressure from India and Brazil reflects a structural tension in sugar markets as major producers balance food security, energy independence, and economic returns amid volatile crude oil prices and climate-related production risks.

Platts, part of S&P Global Energy, assessed daily hydrous ethanol (E100) ex-mill Ribeirão Preto at Real 2,790/cubic meter on June 15, unchanged, while anhydrous ethanol was assessed at Real 2,700/cubic meter, up Real 20.

India's dilemma

Sugar prices in the Rupee 38-40/kilogram range would make ethanol production from cane juice economically unattractive in India, leaving only molasses-based ethanol as the only viable option, Chaturvedi said. The local price of sugar from Mumbai was at Rupee 49/kg as of June 11, according to government data.

India's sugar production is expected to rise 8.2% year over year in the 2026-27 marketing season to 30.21 million metric tons from 27.93 million mt, according to S&P Global Energy CERA. However, estimates could shift to a deficit depending on El Nino's impact.

The diversion of sugar for ethanol production for the 2025-26 marketing season is estimated at 3 million mt, according to both industry participants and CERA data.

India's Directorate General of Foreign Trade imposed a ban on sugar exports effective immediately through Sept. 30.

Market participants told Platts the ban is likely to remain in place through marketing year 2026-27 as the country prioritizes domestic supply and ethanol production amid crop concerns linked to El Nino weather patterns.

India's ethanol sector faces a capacity utilization crisis, with domestic production capacity reaching 20 billion liters/year while oil marketing companies procure only 11-12 billion liters annually for the E20 mandate. Sugar sector capacity utilization stands at just 35%-40%, according to Chaturvedi.

Weather wildcards

Prakash Naiknavre, managing director of the National Federation of Cooperative Sugar Factories Limited, identified El Nino's impact on standing crop sucrose content as a major challenge for 2026-27. "The El Nino, if it impacts the standing crop, how much sucrose comes out of it is going to decide the production number of 2026-27," Naiknavre said at the conference.

Haque warned that geopolitical pressures could trigger an oil shock by July, when the US summer driving season starts, potentially strengthening renewables mandates. "Oil-importing countries like India will really move toward renewables and ethanol, or their currency will weaken further," she said.

A US climate agency has raised the probability of El Nino forming by year-end to 98%, with a strong event expected in the second half of the year. In Brazil, it heightens the risk of excessive rainfall in the center-south region, potentially disrupting harvests, while in India and Thailand, it typically brings drier, hotter conditions that delay monsoons and affect cane development.

Chaturvedi said feedstock availability will be the next big challenge for both the sugar and ethanol sectors globally, with Indian distilleries currently running for only five to six months. The industry has halted capacity expansion plans given current utilization levels below 50%, he said.