US ethanol flows into Brazil amid supply shortage fears

23 March 2011 17:28  [Source: ICIS news]

HOUSTON (ICIS)--Brazil will receive around 200m litres (53m gal) of anhydrous ethanol, mostly from the US, over the next few weeks, market sources said on Wednesday, adding that the cargoes will help the country avoid a potential supply shortage.

Market sources said half of the shipments were headed to Brazil’s centre-south region, which accounts for around 90% of the country’s ethanol production.

The other half would go the northeast region, which produces the remaining 10%.

“US imports should start arriving in 15 days…our inventories are critically low,” a centre-south producer said.

Brazilian ethanol prices soared to record highs in March, lifted by tight supply and unexpected strong demand, particularly for hydrous ethanol.

Hydrous ethanol prices were assessed on Wednesday at Brazilian reais (R) 1,950/m³ ($4.45/gal), up by 35% in the last four weeks.

Brazil uses hydrous ethanol in flexible-fuel vehicles (FFVs), which can run on gasoline or stand-alone ethanol.

The product now costs more than twice the R940/m³ assessed in the same week of 2010.

Brazil also consumes large volumes of anhydrous ethanol, which is blended in gasoline at a mandated 25%.

Anhydrous ethanol was offered on Wednesday at an unprecedented R2,000/m³, up by 42% from a range of R1,400-1,410/m³ in the week ended 23 February.

“Never seen anything like it before,” a seller in Sao Paulo said.

Another source said the spike in recent weeks had surprised even industry veterans, who had expected hydrous ethanol demand to soften because the product was less competitive than gasoline in Brazil.

The arrival of US imports in Brazil represents a significant shift between the world’s top two producers of the biofuel, as the US has been a major importer of Brazilian ethanol in recent years.

The last time Brazil imported ethanol in large volumes was in the early 1990s. The cargoes were also from the US, which at the time was only a small producer of the biofuel.

The US is now the world’s largest producer, while Brazil, until last year, was the top exporter.

The shipments of US ethanol to Brazil will likely re-ignite the debate over the 54 cent/gal US tariff on Brazilian ethanol, particularly since Brazil eliminated its own tariff on the product in 2010.

Brazil has pushed for the US to drop its duty on ethanol for years, saying the restriction hurts free trade and prevents ethanol from becoming a global commodity.

But the US ethanol industry claims the tariff is needed to offset government subsidies the biofuel receives in the US.

Brazilian ethanol supply is expected to remain tight until late April, when supply from the next centre-south sugarcane harvest will begin to enter the market.

The area's sugarcane harvest runs from April to November-December.

Centre-south mills in 2010-2011 crushed 556.2m tonnes of sugarcane, an increase of 2.63% compared with the 2009-2010 harvest, according to sugarcane industry association Unica.

Ethanol production rose by 7% to 25.3bn litres in the same period, the association said.

Unica expects sugarcane production in 2011-2012 to be flat compared with the previous crop.

($1 = R1.66)

For more on ethanol, visit ICIS chemical intelligence

By: William Lemos
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