Harish Damodaran

New Delhi, June 30 Plans by domestic alcohol-based chemical manufacturers to import ethanol have run into rough weather following the recent spike in global prices.

In early April, a Mumbai-based trader had contracted a vessel of 30,000 tonnes of denatured hydrous spirit of Brazilian origin at around $540 a tonne cost and freight, apparently on behalf of India Glycol, Jubilant Organosys, Reliance Industries and Laxmi Organic Industries.

But with world prices shooting up, the trader has not been able to deliver the cargo at Kandla and Mumbai ports, according to industry sources. Hydrous spirit from Brazil is now quoting at around $520 a cubic metre (1,000 litres) free-on-board, which translates into $650 a tonne. (1,000 litres of alcohol is equivalent to 800 kg)

Over the last two months, prices of both hydrous as well as anhydrous (fuel-grade) ethanol have shot up by $100 a cubic metre, with the latter currently ruling at $600 a cubic metre.

If freight of $60-65 a tonne from Brazil is added, the landed cost of hydrous spirit in Indian ports will now exceed $710. And this does not even take into account the 7.5 per cent customs duty and various port-related charges and, of course, inland freight. “Imported spirit will today cost Rs 28 a litre or more for user industries, making them unviable,” the sources added.

On the other hand, sugar mills in Uttar Pradesh are selling rectified spirit (used for potable alcohol) at Rs 24-26 a litre ex-distillery. The price is lower at Rs 20-22 a litre for special denatured spirit used by manufacturers of acetic acid, ethyl acetate or mono-ethylene glycol, who can claim Cenvat benefit against the payment of 14.42 per cent Central excise duty (there is no such benefit available on potable alcohol in the absence of excise duty).

The annual spirit requirement of alcohol-based chemical units is estimated at 1,100 million litres, as against 1,000 million litres for potable liquor. In addition, 560 million litres are required by oil marketing companies for blending 5 per cent ethanol in petrol. From October 1, the blending percentage is to be doubled, which will boost demand by another 560 million litres.

“The chemical industry wants to import mainly to insulate itself from higher alcohol prices in the event of the 10 per cent ethanol blending norm coming into effect,” the sources pointed out. Domestic prices have already gone up by Rs 4-6 a litre since the start of the year, so much so that mills in the North are realising more on rectified spirit (having lower alcohol content) than the Rs 21.50 a litre on ethanol supplied to oil companies.

The oil companies, however, are yet to start the tendering process for procuring the additional ethanol quantities for meeting the 10-per cent blending norm. “They may have to pay more this time, given that the Rs 21.50 a litre price was contracted in October 2006 when global crude was $55-60 a barrel,” the sources noted.

Internationally, ethanol prices have mirrored the rising crude prices. Since April, denatured ethanol futures at the Chicago Board of Trade (CBOT) have gone up from $2.3 to $2.9 a gallon (one gallon equals 3.785 litres). This has partially been due to floods in the mid-west US, causing large-scale damage to the corn crop. Prices of corn, the feedstock for most ethanol plants in the US, have closed to almost $8 a bushel at CBOT.

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