New Delhi, [India] August 31 (ANI): The Indian sugar sector is likely to remain in a tight-supply situation through FY27 and possibly beyond, with low inventories, weather risks and firm global prices expected to keep domestic sugar prices elevated, according to a research report by DAM Capital Advisors.

The brokerage estimates sugar inventory at the start of the 2026-27 season on October 1, 2026, at around 3 million tonnes. This would be enough for only about 35 days of consumption and the lowest opening stock in a decade.

DAM Capital expects sugar production in the 2026-27 sugar season (SS27) to be around 29 million tonnes. It said deficient rainfall could hurt sugarcane yields, while an early start to crushing could further reduce sugar recovery.

'Deficit rainfall threatens SS27 cane yields, and an advanced start to the crush will compress recovery, leaving the system in sustained deficit for at least the next fifteen months,' DAM Capital said.

Weather conditions are expected to remain a key factor for the sugar industry. The brokerage expects the impact of El Nino to continue for two seasons, affecting both SS27 and SS28.

'With 2026 shaping up as a strong El Nino year, we expect SS27 to be a yield-led disruption,' it said.

For SS28, the risks could be wider, with lower acreage and sugarcane production possible. This could also increase competition for sugarcane between sugar mills and jaggery and khandsari units.

The tight sugar supply is also expected to affect ethanol production. DAM Capital said that with sugar becoming scarce, ethanol production from sugarcane juice and B-heavy molasses may need to be restricted through SS27.

Instead, the ethanol blending programme is expected to depend more on maize, FCI rice and broken rice.

DAM Capital estimates total ethanol demand, including requirements from the alcoholic-beverage industry, at around 14.5 billion litres. Of this, it expects around 11.5 billion litres to come from grain-based ethanol and 2.9 billion litres from C-heavy molasses.

However, greater dependence on maize and broken rice could lead to higher grain prices, the brokerage said.

At the same time, the government could use surplus FCI rice stocks to support ethanol production. DAM Capital said FCI rice stocks are currently around three times the normal buffer requirement.

Global sugar markets could also support domestic prices. The brokerage expects global raw sugar prices to remain firm, partly because Brazil, the world's largest sugar exporter, may divert more sugarcane towards ethanol production due to high crude oil prices.

'Global raw sugar should stay firm, with Brazil, the world's largest exporter, diverting cane toward ethanol on elevated crude,' DAM Capital said.

The brokerage expects tight supply conditions to keep sugar prices supported through FY27. It added that repeated weather disruptions could extend the supply deficit beyond the next sugar season. (ANI)