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Indian ethanol imports likely as drought threatens 2015 crop yields: sources

Singapore — Import opportunities for Asian fuel-grade bioethanol into India may be on the horizon as extreme weather conditions threaten to cut 2015-2016 crop yields, market participants said Wednesday.

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India has lost 2,300 lives to the deadliest heatwave the country has experienced in its history, and as temperatures soared up to 45.5 degrees Celsius, much needed monsoon rains might fail to materialize.

The prospect of a second successive drought loomed over India as its national weather forecaster on Tuesday significantly downgraded its monsoon prediction, saying it expected the season's rains to be 88% of average.

This is the bleakest all-India monsoon prediction ever made by the India Meteorological Department, and the first time since countrywide forecasts began in 1988 that the department has projected a drought year.

A drought year is defined as countrywide rains in the June-September season falling below 90% of the long term average.

"El Nino is the major factor for the downgraded monsoon forecast. Its effects are already visible in the form of the ongoing heatwave that has claimed an unprecedented number of lives," D Sivananda Pai, IMD's lead monsoon forecaster, told the Times of India Wednesday.

Market participants in Asia said that should the forecast drought materialize, opportunities for India to import ethanol would be on the horizon as crop yields in the country tank. "They may import ethanol big time, from the US and possibly Brazil," said a trader. "India has a E5 mandate; but by importing E5 gasoline they can free up domestically produced ethanol which can then go into industrial use."

India's sugar production has exceeded earlier expectations this season, with cane proving to be more lucrative than other crops.

Output for the 2014-15 (October-September) campaign, could exceed 30 million mtrv, according to Kingsman?s latest Quarterly S&D, up 2.7 million mtrv on an earlier forecast.

Kingsman is a sugar analysis and forecasting unit of Platts.

But despite ballooning sugar stocks, there are limited prospects for the surplus to be diverted to ethanol since the costs involved would make domestic product uncompetitive against imports.

India produces around 2.1 billion liters of ethanol, 75% of which are used in the food and beverage industry.

Meanwhile, industry sources were eying higher incremental supplies from Brazil and the US due to higher production volumes and reduced demand from the US.

The Center-South Brazil 2015-2016 season is expected to produce 590 million mt of sugarcane, Brazilian sugarcane growers group Unica said last week.

The volume will represent a growth of 18.66 million mt compared with the last season, which amounted to 571.34 million mt.

The sugar mix was 38.33% compared to 61.77% ethanol.

Ethanol trading sources in Asia say that may put US ethanol prices further under pressure and lower costs of imports into the region.

The Philippines imported fuel-grade ethanol marker sank $10.33/cu m or 1.89% in the largest one-day drop in a month to close at an assessment of $546/cu m CIF Philippines on Tuesday.

The US Environmental Protection Agency on Friday proposed 2014, 2015 and 2016 Renewable Fuel Standards that call for biofuels blending below the statutory levels required by the law.

The RFS proposals cut the overall mandate for biofuels, it raised the mandates for the subcategories of advanced biofuel and biodiesel, meaning most of the cut will come from corn-based ethanol.

--Michelle Ho,
--David Elward,
--Edited by Jonathan Dart,