Brazil 2010 ethanol production rises, but short of projections

06 January 2011 19:35  [Source: ICIS news]

HOUSTON (ICIS)--Brazil’s ethanol production rose by 12% to 25.1bn litres in the 2010-2011 crop year, industry association Unica said on Thursday, but the increase fell short of projections made by the group early last year.

The figure refers to production in Brazil’s centre-south region, which accounts for 90% of the country’s ethanol output and where most ethanol mills are represented by Unica.

The group had initially expected centre-south output to climb to 27.4bn litres.

The association blamed the lower-than-expected increase on unfavourable weather conditions, which Unica said hurt sugarcane production in the centre-south.

Sugarcane output for the 2010-2011 crop year totalled 552.4m tonnes, up by 7.2% from a year earlier, but down from an initial projection calling for a 10% increase.

Unica in March 2009 had projected sugarcane crushing in 2010 would rise to 596m tonnes, but by August the association was predicting output was unlikely to surpass 570m tonnes.

"Unfavourable weather conditions during the end of the harvest and, consequently, the drop in agricultural productivity because of droughts from May to September, explain the already anticipated strong decrease in crushing," the group said.

Ethanol sales by centre-south mills totalled 18.9bn litres, a 3.3% reduction from 2009, the association said.

The drop stemmed from a 5.6% reduction in sales of hydrous ethanol, which in Brazil is used as a stand-alone fuel in flexible-fuel vehicles (FFVs), competing directly against gasoline.

Hydrous ethanol demand weakened in 2010 after the price of the biofuel rose sharply, causing it to lose market share to gasoline.

FFV drivers in Brazil usually favour gasoline over hydrous ethanol when the two fuels cost about the same.

Hydrous ethanol is now less competitive than gasoline in most of Brazil, while prices were near parity in Brazil’s most populous state of Sao Paulo, a fuel distributor said.

The drop in ethanol demand in 2010 left the centre-south with 6.2bn litres of ethanol to meet demand in January-March, when there is no production in the centre-south.

Ethanol supply will be tight in the next three to four months, a broker indicated, citing estimates by Unica that demand is averaging 2bn litres/month.

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By: William Lemos
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