18 November 2009 20:26 [Source: ICIS news]
HOUSTON (ICIS news)--Brazilian ethanol demand has begun to weaken as drivers are increasingly choosing gasoline over the biofuel due to an increase in local ethanol prices, market sources said on Wednesday.
“I expect ethanol demand in November to drop to 1.85bn from around 2.00bn litres in October,” a producer said.
According to sources, the slowdown was already being felt in the market, as spot prices began to soften this week following months of sustained increases.
Brazil’s hydrous ethanol prices were assessed on Wednesday at Brazilian reais (R) 1,120/cubic metre ($655/cubic metre, €439/tonne), down from R1,150/cubic metre a week earlier, according to global chemical market intelligence service ICIS pricing.
Brazilian drivers use hydrous ethanol to power flexible-fuel vehicles (FFVs), which can run on stand-alone ethanol or gasoline or in a combination of both fuels.
Market participants said ethanol prices were at parity or higher than gasoline in most of Brazil, considering a 30% mileage loss incurred from using the biofuel.
The decision on which fuel to use is mostly based on pricing, but FFV drivers tend to choose gasoline by a large margin when the two fuels cost about the same.
That scenario is likely to continue as Brazilian ethanol production in 2009 is expected to drop for the first time in several years because of reduced sugarcane availability, resulting from weather-related supply disruptions.
Brazil’s sugarcane industry association Unica estimates ethanol output from the key centre-south region will fall by 5% this year due to heavy rainfall in the area.
The centre-south, which accounts for around 90% of Brazil’s ethanol output, produced 25.1bn litres of the biofuel in 2008.
In addition to using ethanol in FFVs, Brazil also blends the product in gasoline at a mandated 25%, more than twice the maximum level allowed in the US.
The Brazilian government is said to have considered relaxing the blend requirement temporarily to ease supply pressure and avoid potential shortages in the months ahead.
According to market sources, a reduction in blend level, at least for now, seemed highly unlikely.
($1 = R1.71)
($1 = €0.67)
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