Liquor firms expect relief as molasses supply set to improve

Liquor firms expect relief as molasses supply set to improve

Bangalore: In a year that saw prices of alcohol rise steeply, liquor companies expect some relief during the sugar cane crushing season that is under way when supply of molasses is set to improve. Most liquor companies depend on alcohol distilled from molasses, a by-product of the sugar-making process, though there has been a gradual shift in recent years towards distilling potable alcohol from grain.

In December, the basic price per litre of rectified spirit fell to about Rs22 from a high of about Rs37 in the year to September, according to V.N. Raina, director general of the New Delhi-based All India Distillers Association (Aida). “It will give a good boost to IMFL (Indian-made foreign liquor)," said Satpal Chaudhry, chief operating officer of Bangalore-based Khoday India Ltd, which bottles brands such as Peter Scot whisky and Khoday rum. “For four months, profitability will look up."

The sugar year starts in October, and prices of molasses normally ease up till April, when output from sugar mills begins to slow. Liquor companies typically use extra neutral alcohol, or ENA, a refined form of rectified spirit, that costs about Rs3 more per litre. Taxes and the cost of transportation could mean an additional Rs5 per litre. Liquor companies say high ENA prices would impact cheaper IMFL brands retailing between Rs100 and Rs200 per 750 millilitre (ml) bottle, because alcohol accounts for more than 30% of their manufacturing cost.

In Karnataka, Khoday India had increased prices—as have most manufacturers—of some cheaper brands by Rs25 a case around July to offset the rising cost of alcohol. A case contains 12 bottles of 750ml each.

Prices are higher compared with the past two years when sugar?cane production increased globally. “During the peak years, it (rectified spirit) came down to Rs12-13 (per litre)," said Raina. Sugar cane production for the year to September is expected to be lower than previous years because of a shift to cereals and corn.

“ENA prices have been fairly high for the last three-four years. May be this year, you’ll see a jump of Rs5-6 on the higher side," said Shaji Purushothaman, managing director of the Chennai-based Empee Distilleries Ltd, which bottles brands such as Napoleon brandy and Old Secret rum.

He said that it was unlikely that the industry would again see alcohol prices dip to the levels seen four-five years ago, primarily because consumption of liquor has increased and so has demand for blending ethanol with petrol.

According to Aida, India’s alcohol production is estimated at 2,295 million litres for the year to March, about 20% less than a peak of 2,835 million litres in 2006-07. Nearly half of this is consumed by the liquor industry while the chemical industry accounts for about 30% and the remaining is used for blending with petrol.